Subprime Banking | IFA 62 | October 2017

For today’s discerning financial and investment professional

Never Say Never Again HAVE WE LEARNT THE SUBPRIME LESSON?

October 2017

NEWS

REVIEWS

ISSUE 62

COMMENT

ANALYSIS

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CONTENTS October 2017

CONTRIBUTORS

5 Editor's Welcome

6 News

Brian Tora an Associate with investment managers JM Finn & Co.

14 Richard Harvey a distinguished independent PR and media consultant.

Ed's Rant - Never say never again. Michael Wilson braces himself as he considers the rise in non-prime lending

18 Be effective in getting referrals part 3 – Matt Anderson

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

gives seven strategies to help you identify prospects

22 Dangerous Times – Brian Tora assesses

Brett Davidson

current market conditions

FP Advance

24 The rise and rise of paraplanning – Sue Whitbread in the first of a two part series on the role of the paraplanner

Michael Wilson

28

Editor-in-Chief editor ifamagazine.com

Compliance – not regulated – really? Tony Catt considers some of the issues.

30

Sue Whitbread Editor sue.whitbread com

ifamagazine.

Alex Sullivan Publishing Director alex.sullivan ifamagazine.com

Untapped demand – Jason Butler argues that there are opportunities for advisers with younger generations

33 Better Business – Brett Davidson argues that less is more for advisers

36 January 2018 heralds the arrival of the MiFID II directive.

Mike Wilson considers what it might all mean in practice

38 Cashflow modelling – Jon Rolfe with a practical look at why it’s good for clients and your business success IFA Magazine is published by IFA Magazine Publications Ltd, Arcade Chambers, 8 Kings Road, Bristol BS8 4AB Tel: +44 (0) 1179 089686 © 2017. All rights reserved ‘IFA Magazine’ is a trademark of IFA Magazine Publications Limited.

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

IFA Magazine is for professional advisers only.

Full details and eligibility at: www.ifamagazine.com

IFAmagazine.com

40 Deciding on annuities – Patrick Ingram suggests the new Doctor Who might well be an annuity enthusiast

44 How soon is now? Richard Harvey on the problems facing tomorrow’s pensioners

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BNY Mellon’s investment blog, Market Eye is designed to provide investment professionals with a view of key market trends, expert research and insights in an illustrative and shareable format.

You can register to receive Market Eye updates informing you of new posts by visiting bnymellonmarketeye.com

Shaping the future of medicine

7000

More than

medicines in development globally:

Medicines Infectious diseases

Neurological disorders

1,261

1,308

Immunological Cardiovascular disorders disease

1,123

563

Mental health disorders

510

Diabetes

401

HIV / AIDS

208

Cancers

1,919

US$179m:

the average cost in the 1970s to bring a new drug to market

average cost to do the same today – US$2.6bn: the an increase of more than 1,300%

548

BNY Mellon Investment Management is the global investment management arm of BNY Mellon, one of the world’s major financial services groups with operations in 35 countries serving more than 100 markets.

Our multi-boutique model is driven by a unique and compelling approach to investment management.

BNY Mellon Investment Management provides a robust corporate foundation, together with worldwide resources and administrative support whilst our investment boutiques are free to concentrate on what they do best – delivering specialist and focused investment performance.

The number of viruses mammals are exposed to. Around half of these affect humans.

Source: Nature Volume: 546, Pages: 646-650; published: 29 June 2017.

500,000:

the number of hens eggs used in a single day by a single vaccine manufacturer Source: Pharmaceutical Research and Manufacturers of America. 2016 biopharmaceutical research industry profile. Washington, DC: PhRMA; April 2016.

Total unaudited global market: US$1,057.1 bn Latin America Japan

7%

9%

North America

40%

Asia

20%

Europe

24%

Source: Bloomberg and company reported sales; IMS Health Market Prognosis, May 2015. For illustrative purposes only.

Source: Recruit Jobs, August 2015

bnymellonmarketeye.com

IMPORTANT INFORMATION The value of investments can fall. Investors may not get back the amount invested. For Professional Clients only. This advert is a financial promotion and is not investment advice. Any views and opinions are those of the author unless otherwise noted. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and its subsidiaries. BNY Mellon Investment Management EMEA Limited is ultimately owned by The Bank of New York Mellon Corporation. Issued in the UK by BNY Mellon Investment Management EMEA Limited, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Authorised and regulated by the Financial Conduct Authority. AB00120 Exp 31 Oct 2017. T5909

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ED'S WELCOME October 2017

And Breathe...

Every now and then, this old fundamentalist spots something that makes him put down his early morning coffee cup and rub his eyes to make sure he’s really awake. Last week was just such an occasion. But, on reflection, maybe I should have taken another slurp?

What made the whole thing more embarrassing was that I really should have spotted it several weeks earlier. Right back in July, when the world was on holiday, the Share Centre had produced a research report which claimed that dividend cover among FTSE350 companies had dropped to just 0.8 during the first quarter of 2017 – the fifth successive quarter when payouts had exceeded posttax profits, and a full 18% shift since the same period of 2016, when the ratio had been 0.97.

Now, most of us have got used to the idea that a healthy dividend cover is closer to 2.0, if not 2.5, because if a company is paying out its entire post-tax income to its investors then it won’t have much cash left for investing, never mind for fending off any financial tight spots that might come along. My mood was not exactly improved by discovering that, according the same report, FTSE 350 profits had shrunk by 7.6% during 2016, to £67.3bn, at the same time as dividends on those self-same companies had swelled by 7.1% to £81.1bn. And mid-caps had fared even worse – a 16% drop in net profits had been rewarded with a 3% dividend increase, resulting in a div cover of 1.2.

Brexternalities Help! Sound the alarm! We’re selling down our children’s futures for the sake of keeping our income investors onside!

This can’t go on! What a good job, then, that it doesn’t need to.

If there was ever a time when externalities took charge of UK I FAmagazine.com

plc, it’s been during the last 15 months when the international weakness of sterling has been kicking the statistics mercilessly in the aftermath of the Brexit vote. Sure enough, it turns out that the oil and gas companies that funnel foreign earnings through the London market have been barrelling along at five times earnings – in sterling terms, at least - while miners are delivering ten times profits. And by the time you’ve added in the financial institutions, which are having to splurge more on sterling payouts to keep their foreign investors sweet, you’ve more or less accounted for the distortion.

So what about the future? Things are looking better, says Capita Asset Services, because many of those short-term distorting factors are now fading away.

The dollar is dropping, UK profitability is increasing, and we should have seen the last of a £4.6 bn series of hefty one-off dividend payments – including some from Lloyds Bank and from National Grid, which was returning a huge windfall gain from an asset sell-off to its investors.

Britain, or in the United States, or even in the EU. The newspapers’ recent fixation on Brussels and Washington has distracted the general attention from a region whose economy is still growing at almost double the rate of the Western world. And whose dominant player, China, is not just the world’s biggest economy but also the biggest stakeholder in the US bondholder stakes.

(Having overtaken Japan in June.)

At the same time, stock market valuations in Asia are now at much more affordable levels than ten or fifteen years ago. We are, in short, approaching a tipping point for investors which underscores the argument for considering Asian funds in a medium or long-term portfolio. There is plenty of food for thought here Michael Wilson Editor-in-Chief IFA Magazine

That, and the fact that we are now past the twelve-month anniversary of sterling’s decline, ought to keep the div cover level moving back up toward sanity. Here’s hoping.

Asia beckons This month’s supplement on Asia, created in association with Fidelity International, is a timely reminder that it isn’t all about what’s happening in

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N EWS October 2017

Advisers in high spirits about years ahead as they ride wave of opportunity The promise of pensions dashboards featured prominently for 26% of advisers as improved access to information about historic savings plans may prompt the demand for broader pension planning and advice.

Social care funding was also marked out as a key opportunity for growth by 21% advisers.

Although they have done little to dampen business optimism, a number of threats are showing up on advisers’ radars as they look ahead to the next two years. Some 40% advisers are concerned that Brexit could hurt their business, although 21% see it as an opportunity, showing how uncertain a post Brexit world looks.

A bullish state of the sector report has been published which reveals that advisers are in high spirits about the coming years.

The headline figures from the latest research revealed that: • 7 6% of advisers expect an increase in clients in the coming year; • 53% see Defined Benefit (DB) transfers as a key growth opportunity, with social care funding featuring highly and pensions dashboards also creating opportunities; • 81% of advisers have seen turnover increase in the past 12 months, and 81% expect this to continue into 2018.

The only cloud on the horizon was politics, with seven out of ten advisers fearing that volatility at Westminster and Brexit could derail the growth.

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Aegon, the company behind the ‘Adviser Attitudes Report’, concluded that financial advisers are riding a wave of opportunity in 2017. One in five (17%) expect growth to be ‘significant’ as they capitalise on emerging advice opportunities such as Defined Benefit (DB) to Defined Contribution (DC) transfers.

The report, which tracks the behaviour, attitudes and concerns of the UK financial adviser market, found the sector to be in rude health, despite a slight fall in the total number of financial advice firms since 2015.

The findings also stated that when considering the biggest opportunities for the advice market over the next two years, DB to DC transfers emerge on top, with 53% of advisers identifying it as a key area for growth.

But the combination of broader political volatility and Brexit is seen as a key threat by 70% of the adviser market. Regulatory change is also a worry for many, with MiFID II (23%) being called out as introducing further uncertainty to the path ahead.

The advent of robo-advice is also a topic that divides advisers, with 31% expecting to see more demand, while the same number see it as a threat. For advisers with average client AUM in excess of £200,000, any concern is much less evident with only 10% seeing it as a threat.

Advisers are as bullish about profits and turnover, with 75% reporting a profits increase over the past year and similar numbers (77%) expecting to see profits grow in the next 12 months. Some 81% firms have seen turnover grow over the past 12 months, and the same number expect this growth to continue over the coming year.

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N EWS October 2017

Steven Cameron, Pensions Director at Aegon UK said: “Consumers face increasing choices but there are also significant challenges to be overcome in providing for their financial futures. This is especially the case with the ongoing decline of DB and in this new era of pension freedoms. For those advisers that can stay ahead of the curve, all change should be seen as an opportunity to demonstrate added value to both current and prospective clients.”

Keith Richards, CEO of the Personal Finance Society, said: “Advisers have good reason to feel positive about the future. Not only is consumer demand for their services continuing to increase, more and more people are recognising the value they bring

and even the UK government has mandated regulated advice within their own pension legislation for safeguarded benefits over £30,000.

“Evidence of demand was already present prior to the announcement of pension freedoms as consumers realised the challenges of investing alone in a near zero interest environment and the economic uncertainty ahead. Pensions freedoms has undoubtedly increased demand further for regulated advice opening up a range of new client opportunities for firms with extra capacity.

It also provides the advice sector an opportunity to establish an important role in the public’s best interest more broadly going forward.

“Given the demographic and economic pressures facing our economy in coming years, including Brexit and its demand on Government resources, advisers will continue to play a key role in supporting individuals with their financial and social challenges at home. Whatever the outcome of the FAMR, the mere fact that it is a government instigated review with a primary objective of increasing access to advice, is significant in its own right. By working collaboratively with the regulator and Treasury to improve access to financial advice, and by demonstrating the cultural behaviours of the profession, I am confident that we can continue to shift perceptions and encourage greater engagement.”

Financial planning – the time is now In contrast, the overwhelming majority of people (81%) who have had a conversation about their long-term financial security are managing well.

Brits believe that they will be financially worse off in the next three years, but are not discussing their long term financial security and are unprepared for increases in living costs. So says HSBC’s latest Power of Protection report: Facing the Future.

importance of planning and preparation for a secure financial future. It found that more than one in four people in the UK already feel constrained by their finances, with two thirds expecting to become financially worse off in the next three years.

It concluded that 35% of UK consumers believe they will be financially worse off in the next three years, according to their research.

HSBC also found that many families do not have conversations about managing their money for unexpected events. The survey revealed that 44% of families who are just about managing day-to-day, have never had a conversation about their long term financial security.

HBSC interviewed 1,000 people in the UK about their level of financial security, and the

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And, four out of five respondents do not have an insurance policy which would cover regular costs if a family member has a serious illness or accident which would prevent them from working.

Just under half (47%) said their dependants would not be able to manage financially if they were unable to work.

Of course, none of this will come as a surprise to advisers and financial planners. The “light bulb” moment which you witness as a professional, when the power, value and real meaning of financial planning finally dawns on your client in front of your very eyes is a moment to behold.

Let’s hope that more people will be able to experience this and to benefit from it in years to come.

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N EWS October 2017

Chinese Checkers Beijing’s currency regulators, who fix the daily conversion rates for various different purposes, let it be known that the yuan’s flexibility “will continue to be increased”. The relaxation followed an unexpected 7% appreciation of the yuan, which analysts believed was mainly due to the relative weakening of the US dollar, and which was felt to be damaging China’s export prospects at a time when Washington was already threatening damaging sanctions.

A significant recovery in the value of the yuan allowed China’s government to relax some of the currency controls which it had imposed in August 2015 after a currency devaluation. Most

notably, the authorities lifted a ban on shorting the national currency, and observers were expecting that efforts to limit the flow of outbound capital would also be eased.

SEEING POTENTIAL WHERE OTHERS DON’T CAN GIVE PORTFOLIOS A BOOST.

On the plus side, a less tightly controlled yuan ought to provide better protection against allegations of market rigging; on the minus side (some would say), it may stem the recent enthusiasm for bitcoins, about 90% of whose transactions are reported to involve attempts to circumvent the Chinese currency controls.

Top quartile over 1, 3 and 5 years

LET’S TALK HOW. CUMULATIVE PERFORMANCE (%) 1 Year 3 Years Tenure Fidelity Special Situations Fund

22.8

36.7

35.9

FTSE All Share

20.1

21.8

23.6

IA UK All Companies

19.1

23.7

24.2

This advertisement is for investment professionals only and should not be relied upon by private investors. The value of investments and the income from them can go down as well as up and clients may get back less than they invest. Performance: Morningstar as at 30.04.17. Copyright – © 2017 Morningstar, Inc. All Rights Reserved. Basis: bid-bid, income reinvested in GBP. Past I FAmagazine.com performance is not a reliable indicator of future returns. Manager tenure date 01.01.2014. This fund invests in overseas markets and so the value of investments can be affected by changes in currency exchange rates. The fund invests more heavily than others in smaller companies, which can carry a higher risk because their share prices may be more volatile than those of larger companies.

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N EWS October 2017

Gone with the Wind Early estimates were coming in of the economic damage inflicted by hurricanes Harvey and Irma, which devastated Texas and Florida respectively during September, destroying buildings, businesses and infrastructure while also generating a humanitarian crisis in much of the Caribbean region.

serious storm because of the flood damage It is not yet clear who will pick up the tab, but the Financial Times quoted insurance liabilities of $60 billion for Irma; Harvey’s smaller $30 billion estimates are said to reflect the fact that only a third of Houston’s home owners had been insured.

President Trump had called for $7.85 billion of immediate federal assistance for Texas, but the eventual outturn was expected to be substantially more. By comparison, Hurricane Katrina’s impact on Louisiana in 2005 had cost the companies $41 billion.

Credit rating agency Moody’s said on 13th September that it expected the damage within the US to be between $150 and $200 billion, while Goldman Sachs downgraded its third-quarter estimate for national GDP growth from an annualised 2.8% to 2.0%. (Oxford Economics judged the damage more lightly at 0.4% of GDP.) But most assessors agreed that Harvey had been the more

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N EWS October 2017

Optimism is still out there UK consumer confidence staged an unexpected upturn during August, according to survey consultants GfK, with the general level of the group’s trusted Consumer Confidence Index rising to minus 10, from minus 12 in July.

All five of the group’s indices were up – and most notably, the respondents showed greater optimism about their personal finances, with the index for positive change in the last twelve months rising from -2 to +2, and the forecast for the next twelve months rising from +4 to +5. And the Savings Index had increased by one point to +6; this, however, was 21 points higher than in August 2016.

All was not entirely well, however: “The measure for the General Economic Situation of the Country during the last 12 months has increased one point to -30; this is seven points lower than August 2016.”

And although Expectations for the General Economic Situation over the next 12 months had increased by one point in August to -27, this was still five points lower than in August 2016.

3 in 1 - Check out your copy of the GBI Magazine Yearbook 2017-18 Along with your October edition of IFA Magazine and our special supplement on Asia, hopefully you will have noticed that you have also received a copy of the Great British Investments Magazine Yearbook for 2017/18.

Previously known as the EIS Yearbook, this has been carefully designed as a resource to provide genuine thought leadership and perspective for financial advisers and planners, wealth managers, and investment management professionals in respect of advising on EIS, SEIS, VCT, BPR and SITR schemes.

Whether or not you actively advise in this field, you will find incisive commentary from Britain’s premier providers of alternative products, all of which we hope you will find of interest. For those who are more active in the sector,

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you’ll also find detailed company profiles and contact details, and an up-to-date listing of the different investment opportunities which are currently open for subscription Since its launch in January 2017, GBI Magazine has been at the forefront of bringing insightful relevant and educational information to readers to ensure that the EIS, SEIS, VCT, BPR and SITR schemes are better known and more widely understood.

The attractions of the sector go well beyond tax efficiency, and are increasingly being seen as a key consideration as part of a balanced and effectively diversified client investment portfolio.

In recent months, GBI Magazine has hosted a series of highly successful round table events, which have focused detailed discussion on specific topics of

interest. The key points from these sessions have been written up as special features in each issue and they have proved very popular with readers. Discussions with advisers frequently generate questions about which clients should be looking at EIS, and which ones really shouldn’t. The yearbook thought leadership pieces aim to throw light on these subjects and help you to gain a better perspective in this important area. The subjects of the articles were chosen for their topical nature and relevance to all advisers and it has allowed each author to tackle the broader issues in longer form.

This year more than ever the yearbook is a go-to guide and a must read. You can also find a digital version of the yearbook on www.gbinvestments.co.uk

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N EWS October 2017

Asia’s quiet revolution – an IFA Magazine supplement Is there more going on in Asia than meets the eye? This month’s special supplement, produced in association with Fidelity International, accompanies this issue of IFA Magazine. In it, we explore some exciting underlying trends of interest to advisers who may be considering investment in these dynamic markets as part of their clients’ overall portfolios.

With market valuations in the US now looking stretched relative to history, Asia appears ever more attractive from both a fundamental and valuation standpoint, with regional markets continuing to transition towards a more sustainable economic model where consumption dominates.

The supplement considers how changes in demographics, in particular the rise of the middle classes across Asia, are providing genuine investment opportunities.

Asia benefits from a young

population growing up in a mobile and technology-centric world and we highlight how automation and robotics is really making an impact.

The US - and most notably Silicon Valley - has traditionally been viewed as the home of innovation, but Asia is quietly rising to become a key hub in its own right. For example, in 2015 over 60% of the 2.9m patent applications worldwide were filed in Asia, with the majority coming from China.

When it comes to generating an income yield, Asian equities have often been overlooked by advisers and investors, typically opting for more domestic orientated holdings.

Over the last 15 years, Asia has shown the strongest dividend growth globally and today offers very attractive headline dividend yields. This trend is examined in the supplement, which fund managers now have an excellent range of opportunities to deliver yield as well

as growth opportunities from Asian portfolios.

And finally what about China?

Investor sentiment towards Chinese equities has improved throughout 2017 as generally robust economic data has helped ease concerns.

Improving fundamentals have also generally been reflected at the micro level, with a number of domestic focused companies reporting strong results. Check out the supplement to discover some of the investment opportunities that are being created by China’s ongoing economic transition.

New pension transfer qualification available from CISI The new Level 6 Certificate in Pension Transfers & Planning Advice from The Chartered Institute for Securities & Investment (CISI) has been officially approved by the FCA. This new qualification, which is available now for candidate registration, has been recognised by the FCA as meeting the qualification requirement for the Pension Transfer Specialist activity (Activity 11), when combined with a qualification appropriate to obtain a Statement of Professional Standing for advising on retail investment

I FAmagazine.com

products and friendly society tax-exempt policies (Activities 4 and 6). Candidates can sit the three-hour exam from December 2017 onwards.

James Stockdale, CISI Global Director of Learning said: “CISI members have noted requests for information on pension transfers from current and new clients have soared since pension freedoms were announced by the UK Government in 2015.“This demand is likely to increase further as the new EU Directive on European Institutions for Occupational Retirement

Provision Directive (IORP II) states that a standardised pension benefit statement must be provided to all pension scheme members, providing clear information outlining their individual pension entitlements.

The UK market is having to implement this directive by 13 January 2019. “We owe it to the consumer to ensure that our members are sufficiently qualified to the highest standards to help them navigate these new pension freedoms and help consumers financially plan their future lives.”

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N EWS October 2017

Don’t forget the digital – regular E-bulletins from IFA Magazine supplement your regular magazine Just a reminder that as well as producing this magazine ten times a year, your friendly editorial team at IFA Magazine are also operating digitally, to bring you an extended range of ideas, opinions and practical tips as well as information to help you keep up to date.

Monday lunchtime sees our most popular bulletin, where we review the money pages of the national consumer press over the weekend and give you

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a brief overview of some of the main themes and articles they cover. It’s compiled by our editorial team of Michael Wilson, Sue Whitbread and Neil Martin who scour the pages to report the things that your clients might be reading and might want to discuss with you at your next meeting or on the phone. Not all our online reports make it to the print magazine itself. For example, did you see our summer series

on the adviser’s guide to digital marketing? They proved popular with readers but if you missed the five articles, you can still find them on www. ifamagazine.com. You needn’t worry that we will swamp you with vast numbers of bulletins – we’re quite selective – honest!

If you or a colleague would like to receive our e-bulletins, just drop us a line to editor@ ifamagazine.com and we’ll make sure you get them.

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What’s my edge?

A team of 500 investment professionals backing me up At Prudential Portfolio Management Group (PPMG), we manage over £180bn in multi asset funds and annuities. Our expert local knowledge and access to global markets means our funds are always allocated to deliver performance for your clients.

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This is just for UK advisers – please don’t show it to your clients

ED'S RANT October 2017

Never Say Never Again You think subprime lending has learned its lesson from the noughties banking crisis? Maybe, and maybe not, says Michael Wilson What’s the one thing we all know about the 2008 financial crisis? Correct, it started when a bunch of major banks got caught holding portfolios of subprime mortgage debt that their managers had parcelled up into so-called bonds for the banks’ diversified delectation.

And no, they probably wouldn’t have done such a risky thing if the international credit rating agencies hadn’t given them dodgy Triple A assessments that made them look like the safe high-yielding bets that they really weren’t.

But that’s ancient history now.

So what happened next? There’s no need to tax your memory too badly, because the mental scars are probably still there.

A handful of American banks, most notably Lehman Brothers, went under in short order during September 2008, and the whole counterparty system would have

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ED'S RANT October 2017

gone into a paranoid death-spiral if the Federal Reserve hadn’t turned super-hero and forced credit into the system. Nor was it just a transatlantic panic: in Britain, in France, even in Switzerland, the devastated share prices and the state-organised buyouts became our daily fare.

This time it’s different?

Nine years after Lehman Brothers, that still seems like a lot of hurricane damage to have happened because one smallish butterfly had flapped its wings on the other side of the Atlantic.

But there we are. A decade of loose lending, much of it under “irrational exuberance” Al Greenspan at the Fed, had set up an ambitious over-reliance on the expectation that even the poorest borrowers would be able to pay without default just as long as the growth wagon kept on rolling. And the rest, as they say, is history….

Except that perhaps it isn’t. If you think the 2008 debt crisis started in September 2008, then think again, because the first subprime collapses had been happening almost 18 months earlier - and even then, the commentators had already been discussing the threat of subprime apocalypse for many months.

That 18-20 month lead time is the bit that bothers me.

Market perception lags are still as common as ever they

were. And the credit trade is no slouch at thinking up new ways to bamboozle the gullible into backing stuff for which they really ought to have developed a terminal allergy.

So please forgive me if I seem to be crying wolf here. Every so often, the wolf really does turn up and eat everybody.

Just call it non-prime, and watch So what’s my point? Simply, that the idea of sub-prime lending is now regaining traction in a market that ought surely to have known better? I’m going to focus on three fast-growing market sectors which have set up deceptively high-risk scenarios. What you make of them is up to you. But in their various ways, the new “nonprime” models seem pretty much as subby as the old ones, give or take a change of name.

Yes, I’m looking at the big three: non-prime mortgage lending, high-margin consumer lending, and PCP car loans, which have left the business-only sector to become Britain’s overwhelmingly dominant form of car-buying.

As with the sub-prime saga of 2007, the borrowers in all these scenarios carry quite a lot of risk but the lenders carry much, much more.

But will we get 18 months’ notice, like we did in 2007? That’s what focuses my mind. You

see, I’m looking at an autumn in the USA that has sunk quite a lot of low earners’ prospects, sometimes quite literally; and at our very own doorstep lender Provident Financial, which has been wiping the smile off Neil Woodford’s face. And then, by a complete coincidence, at the sliding resale prices in the used car market, especially for diesel, and which seems likely to leave quite a lot of “guaranteed” endof-term valuations under water.

And I’m asking myself: “Is there a story going on here? I do hope not, but if so, where will it go?

And have the regulators done enough to head off the risk?

Safeguards in place Up to a point, I’m pretty sure that they have. At the macro level, most of the developed world has done enough to beef up the core security of banking institutions by tightening up the definitions relating to reserves: it isn’t likely that banks could have listed “Triple A” subprime bonds as part of their Tier 1 capital, the way they could a decade ago.

And at the consumer level, the FCA’s continuing action against payday lenders such as Wonga has made considerable strides: the 2015 caps on charges, the reining in of cowboy enforcement techniques and the limitations on debt rollovers have all done serious damage to the profitability of these lenders: Wonga in particular declared a £35 million loss in 2014, and its APRs are now back down to a mere 1,500% or thereabouts, compared with 5,853% previously.

Improvident Financial

The idea of sub-prime lending is now regaining traction in a market that ought surely to have known better?

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So how did it happen that Provident Financial, a Bradfordbased doorstep lender with APR rates of around 800% even on its ‘improved’ online loans, was still hanging onto 800,000 UK customers right up to the time of its shocking

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August announcement that the £60 million profit it had been forecasting for its consumer credit division had somehow turned into a £120m projected loss? What sort of a corporate culture would have kept that prospect dark in what was, after all, a FTSE-100 company?

Questions, questions. If anything, Provident Financial had actually been among the gentler subprime lenders, charging a typical £43 interest for a £100 loan that ran for 13 weeks. Its distribution pattern, consisting essentially of 4,500 mainly local and part-time agents, had merely taken up the slack after the 2008 crisis, which had left millions of people with credit problems desperate for loans that they could no longer get from the now-frightened banks. And its typical loan balance was only around £500, after all.

And what was wrong with that, many would have asked? Even the FCA agrees that credit for the disadvantaged is a legitimate right, and that if it’s used in the right way it can help families to balance their budgets and smooth out any unexpected costs. The huge APRs charged are counterbalanced by very high default rates (plus hefty legal and recovery charges), which will explain why so many doorstep lenders are making low profits or indeed losses.

To which, Provident Financial would have agreed that its own downfall had been largely caused

by its dismissal of its 4,500 part-time operatives in favour of 2,500 full-times. To you and me, that might have seemed a logical step if it meant that the sale process became less housewifeamateurish and more FCAcompliant. But alas, it appears that it also killed the modus operandi on the doorstep: debt recovery rates plummeted from 90% to just 57%. (Ouch.) And that in turn sent the company’s share price down by 70%. In a day…

Does all this spell the end of doorstep lending? Judging by the competitors muscling into Provident Financial’s territory, it seems the answer is no. A bigger worry would be if Provident’s Vanquis Bank came under a run of pressure from panicky investors. It does, after all, have half a billion pounds out on loan.

PCP car loans And so to the Personal Contract Plans (PCPs) which now account for as much as 80% of UK car purchase finance, with an estimated £58 billion out on loan (source: Bank of England.) If you’re familiar with the mechanics of the deal, you’ll know that your upfront deposit allows you a surprisingly attractive ’rental’ in a situation where the eventual residual value of the car is fixed by the lender. In practice you’re paying for somebody else’s guesstimate of the depreciation rate, and

If anything, Provident Financial had actually been among the gentler subprime lenders, charging a typical £43 interest for a £100 loan that ran for 13 weeks

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ED'S RANT October 2017

your payment rate won’t change even if they’ve got it wrong.

And if they have? Well, it’s not your problem, is it? The real pressure is on the banks which have lent out £24 billion of that £58 billion, and the car manufacturers who are exposed to the other £34 billion. For the banks, we can say that that £24 billion would equate to around 9% of their Tier 1 capital.

So what’s the problem? Well, for one thing, as we know, the dieselgate scandal has raised calls for entire classes of cars to be phased out (or simply crushed), a factor which appears to be hurting resale values among diesel vehicles. And for another, there’s a growing trend in the United States toward repackaging the trickier “subprime” car loans as bonds for the investment industry to buy. Does that ring any bells with you? And if so, are you bothered that delinquency rates are now nudging 6%?

No need to panic just yet, the Bank of England says. It would take a 30% collapse in UK residual values to wipe out car finance profits – and anyway, America’s car finance is vastly bigger than our own. Annual finance issuance is in excess of $90 billion, having risen by 17% in 2015 alone, and around $100 billion of the accumulated total has been repackaged into bonds, of which about a third is rated “subprime”. (Says Fitch.)

The problem appears to be that US car residuals are now falling away quite fast after two years in which secondhand values had held up well. And that will do two things. First, it’ll reduce the ‘capital stock’ of the finance companies, and secondly it’ll persuade lower-income car buyers to default because they know they can replace their cars for less than whet the loan companies say they’re worth.

Are we ready for that scenario?

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Subprime mortgages And so to the big one, as far as the newspapers are concerned, even though the economists are not so sure. Quietly, very quietly, subprime mortgages are creeping back into the marketplaces of both Britain and the United States. The horror has returned. Except, of course, that this time around it’s squeaking rather than roaring.

In the States, so-called “nonprime” lending is now running at around $3 billion a year, which sounds a lot compared with $1 billion over the previous 18 months but is actually microscopic compared to the $1.6 trillion annual volumes of homebuyer debt. What has changed, however, is that the legislative environment itself seems likely to shift.

In America, at least, the mortgage market has been dominated in recent years by the Dodd-Frank banking rules which reined in the post-crisis institutions and gave them a good talking to about loose credit. What’s changed is that President Donald Trump has now set his face against Dodd-Frank and may try to dismantle all or part of it.

And now, after a summer of stagnant growth and autumn hurricane wipe-outs, what do you suppose an embattled Prez is likely to do? Tighten lending criteria for the hardpressed working man with little money, or relax them?

And in Britain?

Fortunately it couldn’t happen here, could it? The Mortgage Market Review put an end to unaffordable mortgage arrangements, didn’t it? And the tightening of lending criteria has made it all but impossible for customers with troubled credit scores to get onto the housing ladder, for better or worse?

That’s what you think. Quietly, almost surreptitiously, “impaired credit” mortgages are coming back into the game – it’s just that you don’t see them advertised by the big players. Instead, alternative banks and pseudo-banks such as Masthaven or Pepper Homeloans or Magellan or Bluestone or Kensington Mortgages (honestly) are offering carefully risk-graded home loans to people who’ve had anything from a missed phone contract payment to a County Court Judgment.

And if you’re expecting that the interest rates will be crippling, you may be in for a surprise.

Pepper Homeloans says that its two year fixes go as low as 2.28% for buyers “who marginally fail a credit score”; Kensington says that its clients may pay only 1% more than the average buyer, or perhaps 1.5%. (Although I don’t have any details of the arrangement fees, which may not be modest.) And at the upper end of the risk scale, Magellan will apparently talk to even lastyear bankrupts, albeit at rates of perhaps 8% over three years.

And that, you might say, is the financial services industry working in its most efficient way for the benefit of our whole society. It’s not for me to question the financial risk and return assessments at the far outer edges of the credit system. All that I really want to know is that those risks can be contained if they go belly up, without a spread of contagion like the last time around.

But a reality check, please. The parameters of debt are changing all the time, and the spirit of human ingenuity knows no limits where the rules are concerned.

If you’re expecting to see direct descendants of the monsters that sent us down in 2008, remember the wise words of Mark Twain: “History doesn’t repeat itself. But it rhymes.”

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RE FE RRALS October 2017

Be effective in getting referrals: seven strategies to identify prospects This is the third and final article in his series for IFA Magazine aimed at improving your success at getting referrals, from Matt Anderson of The Referrals Academy. In it, Matt explains how you can make it easy for others to open doors by being so clear about what you want that they don’t have to think about it

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As a financial planner, when it comes to getting great referrals, you want to identify people who your client or contact will know and like and who sound like good potential prospects for your business.

Asking yourself this question is one of the best referral habits you can have because it will hardwire you to always be thinking about an ask.

Since no single strategy works every time, you need a toolkit of approaches to be great at getting referrals – at least three strategies.

Do this! Make it a goal in every meeting you have, to identify between 1 and 3 names of people they know and like and who sound like potential prospects.

If you have developed a planning or fact-finding tool, that can help. Otherwise, here are the seven ways to excel in this area:

2. Listen differently

When you do, you will find that you pay more attention to conversation that in

1. Pre-plan your asks Before you meet, do some homework on who your client is connected to: What can you find out online or through LinkedIn contacts?

What people have they already mentioned as being in their life?

Do this: Once a week, look ahead in your diary and for every meeting scheduled, ask yourself: what would I love to ask this person?

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Since no single strategy works every time, you need a toolkit of approaches to be great at getting referrals – at least three strategies

the past may have seemed frivolous or unrelated to your agenda for the meeting.

You already know that there are times when you don’t listen closely to everything someone says. When you make a point to listen closely for names, you’ll start to notice that, more often than you realised, they do mention specific people.

Tip: Pay attention to the questions which business professionals ask you. Instead of just answering the question (which is our natural inclination), ask yourself WHY are they asking me this question?

Sometimes people have someone in mind they want to introduce you to but want to qualify you better without always disclosing that they are connecting the dots to a specific person. Probably this person just needs a little more nudging from you: “Do you know someone who might have this need?”

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3. Ask ‘fishing’ questions If you don’t yet know the names of prospects in somebody’s personal and professional world, just ask different questions. Remember, the goal is to identify specific people or opportunities for you.

Personal connection fishing questions: Use the acronym FORD. Find out about people: • In their Family/Friend network; • Related to their Occupation; • That are part of their Recreation activities (hobbies AND talents) – what do they love?

• Involved in one of their life Dreams/goals – emotional triggers (grandchildren?)

Ask people: “I’m curious: “What kind of guidance do you get at work about your pension/benefits?”

“Some people talk about financial-related topics to others; some tend not to. What’s it like where you work?”

“Who talks about financialrelated topics to you?”

“What do you tell other people about our work?”

Business connection fishing questions: You are still looking to find out who each person knows and likes and who sounds like a good prospect for you. Ask those in business (including current and potential introducers) about: a) Their best sources of business b) Who they work closely with (colleagues and clients) c) Most interesting projects d) Where they meet people and make business connections e) Where they get best practice ideas from (e.g. peer group) f) Any target markets they have or specific industries they focus on g) What type of business they are most looking for h) What else they are hoping to accomplish this year

4. Use generic specifics If you have yet to identify anyone: take your broad ask and narrow it down to one or two people: instead of 30 family members say ‘siblings’ or ‘parents’; ‘close friend’ beats ‘friends’; and ‘favourite colleague at work’ beats potentially dozens of anonymous ‘co-workers’.

For business owners: ask about their favourite clients, favourite vendors who they outsource to, and their top referral sources.

Do this! Use this approach instead of saying ‘friends, family or work colleagues’?

5. Memory jogging stories Educate people about the different types of work you do by sharing stories about others you have helped. Deliberately choose examples based on who they probably know. During general conversation, start weaving in these stories.

Do this! Start asking one or two new questions to ‘fish’ for names of people.

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Client asks: “So how’s your week going?”

You tell story: “It’s been pretty interesting because I’ve helped two people….”

OR “Things are really good at the moment. In fact, just recently I had a great experience…”

The goal is to hear: “Oh, you might want to talk to…” Look for flickers of recognition.

You could even legitimately ask: “Do you ever run into people in that situation?”

Do this! Incorporate 2-3 stories of recent clients to plant seeds with others about who you want to work with.

6. Memory jogging lists A few people have success presenting a list of prospects or memory joggers to a client.

If you’ve got water in the well with someone, it ought to be perfectly appropriate to say: “Before we wrap up, I’m curious to ask you about a list of area businesses that I put together the other day. (Show list) Do you have any decent contacts at any of these places? I’d love to talk to them about their (fill in the blank) needs because I’ve worked with a lot of similar organisations and they’ve turned into excellent relationships.”

prospects or it might be examples of specific situations when people use your services. As ‘memory jogging’ indicates, your goal is to help people connect dots in their heads to people they know who they can connect you with.

Do this! Create an ideal client list of specific names, companies, locations or professions and life situations.

Consider titling it “Some People We’ve Helped Recently.”

7. Highly specialised subject matter Explaining a highly specific topic to someone else which applies only to a small number of people can help narrow a network down to an effective ask. David, a past IFA client of mine, met with a lawyer to talk about how he was helping a few of his clients. He showed him a highly specialised estate planning strategy that applied to just two of this lawyer’s fifty or so clients. Because it was so defined, it made the ask and getting the referral easy. Had the strategy applied to all fifty of this person’s client base, it would not have worked well since fifty is an overwhelming and impractical request of anyone let alone a busy professional.

Educate people about the different types of work you do by sharing stories about others you have helped

What to do now: identify which one or two of the above seven strategies you already do and add just one of these seven to your toolkit for identifying prospects until it seems to be clicking and turning into a habit. Only then should you plan to add another strategy, otherwise it will be overwhelming and you’ll end up not doing any of them effectively.

There are many ways to present this. It could be a specific list of

Matt Anderson, founder of The Referrals Academy, has grown his business almost exclusively by referrals. He has trained and coached people from over 30 countries and specialises in helping financial advisers to get more and better prospects. He is based in Chicago but was born and raised in Coventry.

He is the author of the international bestseller Fearless Referrals, which Brian Tracy, author of The Psychology of Sales, says “teaches you the “Golden Rules” for developing a continuous chain of high quality referrals for any product in any business.” The book is available on Amazon.

Connect with Matt on linkedin - www.linkedin.com/in/mattandersonintl or check out his blog:https://matt-anderson.mykajabi.com/blog www.TheReferralAuthority.com

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BRIAN TORA October 2017

Dangerous Times Brian Tora considers whether there are investment lessons to be learned from the past, as he confesses to finding the current scenario as hard to read as any he has encountered in more than half a century

October can be a tricky month for investors. The Great Wall Street Crash of 1929 took place in October. Black Monday, the day that the UK market lost more than 20% of its value in a single day, was October 19th 1987 and the week that followed saw equity values shredded.

Arguably the worst bear market in living memory saw its most dramatic falls in October. I should know. I was there.

A look back to the 70s In 1974 I had a full eleven years’ experience in the world of stocks and shares. Fuelled by the Yom Kippur war in the Middle East, a quadrupling in the price of oil, the miners’ strike, the three day week and the secondary banking crisis, our own stock market shed more than 70% of its value in little more than two years. The autumn of 1974 saw the end game in this most damaging of sell-offs, with many fearing that major City institutions were going bust. The nadir was reached on the first business day of the New Year.

Buy on weakness, sell on strength?

Investors and their advisers should never lose sight of the fact that markets are at their highest when buyers are at their most confident

quarter of 1975. Capitalism survived, though the price paid for economic mismanagement was high. Inflation was rampant, reaching an annual rate of 25% at one stage. Government bond yields approached 20%. And Chancellor of the Exchequer Denis Healey had to go cap in hand to the International Monetary Fund to request a bail-out for Britain.

The mid 1970s were tough indeed.

Should I be drawing comparisons with the conditions that exist today? Probably not, though a sage old investor – the late lamented Sir John Templeton – once remarked that you should never believe the pundit who tells you this time is different. In truth, markets do repeat patterns that lead us to believe that we should have seen the next correction coming.

Life isn’t like that, of course, and investors and their advisers should never lose sight of the fact that markets are at their highest when buyers are at their most confident.

As it happened, the Financial Times Industrial Average – our benchmark index of the day – rose by 150% during the first

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In fact the opposite is true, but buying when the world and his wife is selling takes courage, just as bailing out when buyers outnumber sellers by a margin is a hard call to make. Often the turn comes when an event takes place that is not necessarily an obvious indication that the mood should change. In January 1975 it was the collapse of an oil company that signalled the bottom of the worst bear market known to investors. But the result was to trigger a recovery.

Times have changed There are differences today, though. In 1987 the influence of the derivatives market was crucial in speeding the collapse of share values. Today circuit breakers are in place to ensure such a panic driven, one way market cannot develop again.

In 1974, private investors were still a large component in a lightly regulated market, while information tended to trickle down, rather than arrive in

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nano seconds on your smart phone as happens today.

Tighter regulation and the predominance of the professional investor ensure news is reacted to with extreme dispatch.

While the prospects for a return to robust global economic growth appear to be improving, you have to ask yourself how much further shares can progress

Defensive measures The scion of the great House of Rothshild, Nathan Rothshild, is famous for ascribing his great wealth to selling too early. Long term investors, like Warren Buffett, will doubtless be prepared to sit out periods of potential uncertainty, such as those which undoubtedly exist today, by concentrating on value and quality.

Shorter term managers, such as those subject to the scrutiny of the monthly performance tables, already seem to be taking a more defensive stance in their portfolios. I can’t blame them.

Markets are high and valuation levels stretched. While the prospects for a return to robust global economic growth appear to be improving, you have to ask yourself how much further shares can progress.

Investor confidence, if damaged, can evaporate unsettlingly quickly. It could well be a geo-political incident that provides the trigger. There are plenty around. North Korea and the Middle East are areas that could ignite even greater concern than they do at present.

Or they could calm down – my wish, certainly, and one which would have a potentially beneficial effect on sentiment.

Not sure I’d bet the farm on such an outcome, though.

So my stance remains cautious, with the proviso that there is still a lot of money around to support financial asset values, that greater economic co-operation lessens the chance of a financial upset (though doesn’t eradicate it) and that Trump could either triumph or be dumped – either option likely to provide a boost to confidence. Investment is never straightforward, but I must confess to finding the current scenario as hard to read as any I have encountered in more than half a century. Stay nimble, my investing friends.

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PARAPLAN N I NG October 2017

The rise and rise of paraplanning In the first of a two part series looking at the role of the paraplanner, Sue Whitbread looks at how effective integration of paraplanning can contribute to the success of a financial planning firm With autumn almost here, most firms will be thinking about preparing a strategic review of activities.

Now is a great time to consider what makes your business tick and how you can make it even better for you and your clients into 2018 and beyond.

One key factor is having an effective team in place – and this includes the use of paraplanners and support staff. Most advisory firms will recognise that the delivery of an effective, integrated financial planning service means having a great team in place which has a complementary skill set and works well together. Gone are the old days (thank heavens) when advisers would typically carry out most of the elements in the business process themselves, with the lucky ones having just one or two support staff to help with the admin tasks. It is now well accepted that embracing the paraplanner role has a positive impact on a firm’s ability to innovate, on reducing its overall business risk, on boosting profitability and on enhancing clients’ experience too.

It is now well accepted that embracing the paraplanner role has a positive impact on a firm’s ability to innovate, on reducing its overall business risk, on boosting profitability and on enhancing clients’ experience too

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PARAPLAN N I NG October 2017

The paraplanner role Paraplanners are very much involved in the delivery of the financial planning service, whether it’s carrying out cash flow modelling or due diligence/ research, using the specialist skills of a paraplanner whether in-house or outsourced. This helps the adviser to streamline the service proposition and focus their time and effort on building and nurturing the all-important client relationships Perhaps not so obvious are the benefits which paraplanners provide by establishing a valuable sounding board for advisers and planners. They can challenge proposals, clarify technical issues and discuss alternative planning solutions, all of which really help to improve the quality of service and advice which the client receives. Creating financial plans and client reports, conducting research, analysis and due diligence are time consuming tasks that require a specific skill set. Knowing that these tasks are being handled efficiently and effectively by team members or outsourced experts who have that skill set, can help to reduce business risk and is great for advisers too. It means that advisers can maximise their time in direct client facing work. This is all positive for client retention and business profitability too.

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PARAPLAN N I NG October 2017

A powerful resource Across the UK, paraplanners have been building an impressive and dynamic community where they share ideas and best practice in the same way as planners and advisers have done for many years. No longer is paraplanning simply seen as a route to becoming an adviser, rather it is a strong career choice in its own right. More and more paraplanners are gaining level 6 qualifications such as Certified Financial Planner or Chartered Financial Planner titles and many have more qualifications than the advisers they work with.

However with many firms finding that good paraplanners are in short supply, it is difficult to recruit suitably skilled and qualified individuals. One option gaining in popularity is the use an outsourced paraplanning solutions.

This can be very attractive for those who decide that an in house facility is not feasible within their business for whatever reason.

However, what are the practical considerations of using an outsourced solution? Whether you are already using one or considering it for the future, we’ve asked Damian Davies of the Timebank to explain some of the steps you can take to ensure that the relationship runs smoothly and that you get the best possible results for your clients and your business.

However with many firms finding that good paraplanners are in short supply, it is difficult to recruit suitably skilled and qualified individuals. One option gaining in popularity is the use an outsourced paraplanning solutions.

This can be very attractive for those who decide that an in house facility is not feasible within their business for whatever reason

Next month, we’ll take a look at in-house paraplanning and get the practitioner view on how your team can improve the way you work together for optimum success.

Useful tips on how to manage an outsource relationship successfully 1 – Manage the relationship Treat the outsourced partner as part of your team. It is the only way to make everyone go in the same direction.

2 – Monitor targets Set targets for productivity, turnaround times and quality. When people work to targets, there can be no discrepancy in expectations from either side.

3 – Communicate with your existing team If you bring in an external resource you need to talk to your team and engage them in the decision. Think about it from their perspective. You may decide to engage an outsource paraplanner as you want to free up your employed paraplanner to do more exciting things. If they don’t understand the reasoning behind the decision, however, they can find themselves feeling threatened and thinking you want to replace them.

Also, think about the impact on advisers and administrators and talk about any potential changes to the dynamics of the team.

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Outsourcing Paraplanning – A guide for advisers and planners – Damian Davies, The Timebank This is going to be the most thrilling article you have read on anything to do with financial services, so fasten your seatbelts.

I am going to outline things to think about before engaging an outsource paraplanner as well as give some useful tips on how to manage an outsource relationship successfully.

In short, I am going to change your life.

Firstly, I want to bust some myths: “Outsource Paraplanning is cheaper” • The cost is about the same, the difference is you pay for what you use, so it is probably a bit more efficient.

“Outsource Paraplanning is better” • Outsourced paraplanners tend to have wider knowledge, as they come into contact with so many firms, but they will not know the nitty gritty that makes your firm unique.

“Outsource Paraplanning is easier” • This depends on how you engage the paraplanning business, but it could end up being a lot harder than employing someone!

Things to think about before engaging an outsource paraplanner

to Option B; investment, compliance, book-keeping, marketing, HR. Paraplanning businesses only do paraplanning so they should be pretty good at paraplanning. If they have a view on best practice it is always worth listening to it.

For Option A to work well, a firm needs to commit to the same levels of training and management as they would with an employee, and sometimes more if there isn’t strong documentation around processes and procedures, which is why I said it could be harder work to outsource than to employ.

Decision 2 Option A - Do I want to outsource to a freelance individual? Or Option B - Do I want to outsource to a paraplanning business?

Whichever way you go, create a checklist of things to confirm with the potential partner: • How do the fees work?

• What coverage is there in the event of illness or absence?

• What PI is in place?

Decision 1 OPTION A - Do I want an outsource paraplanner to do things the way I do them? Or OPTION B - Do I want an outsource paraplanner to do things the way they do them?

Your natural instinct will be Option A, but it is worth being open minded about Option B too.

Think about it this way; a business delivering financial advice has so many disciplines that are already outsourced similarly

• Where do responsibilities between the paraplanners and the advisers begin and end?

• What qualifications or specialisms are held?

• Is there compliance with appropriate data protection and information security requirements?

Paraplanning businesses tend to have more resources than freelancers, but freelancers tend to be more flexible to pop into the office regularly or take on more responsibility like talking to clients.

About Damian Davies Damian established The Timebank in 2003 after being an adviser and discovering the need for outsourced paraplanning first hand. Since then Damian has directed The Timebank to be the largest Paraplanning provider in the UK and is starting to grow the business internationally.

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COM PLIANCE October 2017

Compliance – not regulated – really?

With advisers operating in a world where regulation is king, should the compliance function be regulated too?

With the Senior Managers and Certification Regime (SMCR) coming into force for IFAs next year, Compliance Consultant Tony Catt considers some of the issues

Unfortunately, many advisers are almost paranoid about providing the necessary evidence in respect of complying with regulatory requirements when doing the right thing for their clients.

some types of business to be transacted. Most recently, many have tried to force IFAs to operate on a restricted adviser basis. This is a lack of understanding of the true value of independent advice.

Of course, all professional advisers are subject to compliance with regulatory standards and, as a result, are in regular contact with a compliance practitioner of some description. These practitioners can range from “tick-box” merchants through to “light-touch” practitioners.

There is room in the UK for all types of compliance consultant, however choosing the approach which suits you best is dependent on the needs of your firm and the preferences that the principals will have.

I worked with a network which introduced a new fact find document for use by mortgage advisers. The document was rather lazily constructed, as it was obviously two documents stuck together, to the extent that about half way through, the questions reverted to basic information that had previously been covered.

The network then made this form mandatory. This showed a complete ignorance of the FCA stance that a fact find document is not a mandatory requirement.

The mandatory requirement is to “know your customer”. Yes, the easiest way of collecting information is with a set of preset questions, ie. a fact find, but if, as an adviser, you can evidence that you know your client, then this evidence can be collected in whatever format you like.

Does size matter?

The networks have whole departments covering the various elements of compliance – file checking, pre-approval of business, training, management information etc. However, in many ways this cast of thousands has still not made them any stronger than individual practitioners. Networks will often be quite prescriptive about the type of business that advisers can undertake and simply not allow

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An FCA registered compliance consultant?

Here’s an interesting example. I recently had some conversations with a prospective client about signing-off financial promotions.

They had been advised that the financial promotions which they intended to carry out needed to be signed off by an FCA registered compliance consultant.

I checked this situation with the FCA as I wanted to be sure.

There is room in the UK for all types of compliance consultant, however choosing the approach which suits you best is dependent on the needs of your firm and the preferences that the principals will have

The guidance that I received from them was that the financial promotion would be covered by the client’s FCA permissions granted to their firm. So, if they are a fund manager for example, they would register with the FCA and then they can undertake all the controlled functions

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COM PLIANCE October 2017

and the permission that has been authorised by the FCA. Anybody helping them would simply be providing guidance that they are staying within the boundaries of their permission.

I proceeded to discuss with the FCA about registering myself with them as a compliance consultant. There is no registration is this respect. I would need to set up a firm to provide regulated services, eg advice or fund management.

Since I would not actually be carrying out any business of that nature, my application would not be accepted as the FCA would have no business figures upon which it could base its fee structure.

So, the answer I had to give to that potential client was that they had been misled about the regulation of compliance practitioners. The firm that was offering compliance services to them was actually registered with the FCA because it undertook other regulated business and the authorisation had nothing to do with the compliance service that they offered, (at a considerable cost).

It is surprising that compliance is not a regulated activity, as if it is not done correctly, then a lot of damage can be suffered in consequence by adviser firms

high-risk business types. The question to the compliance consultant changes from “can I do this?” to “how can I do this?” Thus, it can help you to provide good outcomes for your clients in types of business that may not even be allowed by the networks.

The arrival of SMCR The new Senior Managers and Certification Regime (SMCR) may go some way to compliance becoming a regulated activity in the future.

The SMCR breaks down various aspects of business management and allots duties and accountability to the managers that are appointed.

This could easily be extended to the compliance functions.

The SMCR is being introduced for IFA firms in 2018. It has been running for banks and larger organisations for a while. It will be interesting to see whether this leads to better customer and client protection in the future.

Putting clients first It is surprising that compliance is not a regulated activity, as if it is not done correctly, then a lot of damage can be suffered in consequence by adviser firms.

Most advisers do not question the guidance that is received from compliance people and will act upon it. Therefore, advisers can be misled in the same way that you then can, in turn, mislead clients.

At the other end of that scale, a good compliance practitioner can really help an adviser by enabling you to do the very best job you can for your client.

This can include being able to do great quality business in what are often regarding as

About Tony Catt Formerly an adviser himself, Tony Catt is a freelance compliance consultant, undertaking a whole range of compliance duties for professional advisers. info@tonycatt.co.uk

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U NTAPPE D DE MAN D October 2017

Untapped demand Since he stopped being a financial adviser two years ago, Jason Butler’s personal experiences have reinforced his view that there is a very bright future for the role of advice in providing services to younger clients. Is your firm seizing the opportunity?

What type of financial adviser are you?

Do you see yourself as a technical specialist, solving single issue problems for people such as equity release, financing a property purchase, arranging life assurance or deciding what to do with defined pension benefits?

Or are you a ‘wealth manager’, helping people choose and maintain a suitable investment strategy and associated tax wrappers? Perhaps your clients are still working and accumulating wealth or they might be retired and living off their assets.

New car, caviar, four star daydream?

Whatever type of advice service you provide and whoever your clients are, money is merely a means to enable them to live the life they want.

But money constantly tops the list of things that people say causes them the most stress and anxiety in their life. Money is also one of the main causes of relationship conflict and divorce.

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In my experience, few people are interested in the technical aspects of personal finances. Most are, however, interested in what money can do for them and how it makes them feel emotionally.

Are your clients living their ideal lifestyle or are they just drifting along and letting circumstances and events dictate their happiness? Few people are really clear what would make them truly fulfilled.

The means to an end Helping clients to take stock of their current lifestyle, identifying what’s important and whether they are using money in a way which is aligned with those values is a very valuable service. Some financial advisers do this well. Many do not.

Since I stopped being a financial adviser nearly two years ago, I’ve focused on researching, writing and speaking about personal and financial well-being. I am engaged by employers around the UK to give financial well-being presentations to groups of their employees.

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I focus on the psychological aspects of money and how to develop habits and behaviours which maximise happiness and overall life satisfaction.

I touch on the importance of doing a job that you enjoy and that suits your personality, skills and experience. I explain the importance of being in control of your spending and how this can affect happiness. I also make the point that having some form of long-term plan, based on one or more lifetime financial projections, helps people to make day to day financial decisions in context.

The advice gap Feedback from employees is that they welcome the insights I give them but they still want someone to help them clarify their life values, articulate their financial goals, get financially organised and make good decisions.

The problem is finding an adviser who they trust and can afford and who is more interested in them than their money.

It seems there is massive untapped demand for some form of financial coaching and planning service that is less about financial products and more about the lifestyle context in which daily decisions are made.

People happily pay £50 per month or more for a smart phone, a product which didn’t exist over ten years ago. So why can’t they buy a simple financial planning service for the same amount?

By focusing on advising only people with large investment portfolios and charging them a percentage fee means firms are restricting their market greatly. They are not building a connection with younger people, who will be inheriting trillions of pounds of wealth over the coming decades.

A missed opportunity?

I think financial advice firms are missing a big opportunity to help millions of people to improve their financial well-being through a subscriptionbased service that leverages the efficiency of technology and the empathy of real people.

By using next generation digital collaboration tools like online fact finds, financial portals, financial planning tools and video conferencing technology, firms can deliver an enjoyable, personalised and valuable service at a price people are willing and able to pay. This would also enable firms to deliver the service in a safe, consistent and profitable way.

With many people now facing the prospect of living to 100 years of age, they need help more than ever with making good financial decisions. They will be younger for much longer, probably have several careers and life transitions, and increasingly need to balance a range of competing priorities.

Employees all around the UK are telling me they want help with their personal finances. Will your firm step up to the challenge and help them?

Jason Butler is an expert on financial well-being. His latest book – 'Squeezing the orange: Simple ways to live a full life' is out now!

www.jason-butler.com/squeezing-the-orange

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BETTE R BUSI N ESS October 2017

Better Business - Less is more for advisers Everyone knows that the secret to being a great adviser is to have excellent listening skills. That means the client does most of the talking and you do most of the shutting up. Brett Davidson of FP Advance looks at how many advisers actually do this in reality and gives practical advice on how to refine your skills If you want a real eye opener, record your next client meeting and listen to it afterwards.

What you’ll probably find is that your voice absolutely dominates proceedings.

This is not easy Christian Bale won an Oscar and a Golden Globe for his role in the The Fighter, playing Dicky Eklund, the over-the-top addict and brother of aspiring boxer Micky Ward.

Interestingly, in Bale’s acceptance speech at the Golden Globes he acknowledged the work of lead actor Mark Wahlberg, for playing his role in a quiet and reserved way.

What’s the fuss about that?

In acting, if the person playing the quiet role or the straight role overplays their hand, the crazy person needs to become even crazier to stand out, and it doesn’t work. They look like they’re hamming it up.

Bale acknowledged Wahlberg because what he did is hard to do. He also pointed out that doing that job often goes unrecognised. It’s not the highprofile part, or the one that gets all the acclaim.

Without a true professional in that role though, the whole project would fail; it’s that important.

While many other parts of the advisory process are slowly being commoditised and reducing in value, great questions and great listening skills are not

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BETTE R BUSI N ESS October 2017

This reminded me of the role you play in advising your clients, and how important it is not to overplay your hand. Here are three things great advisers do: 1. Great advisers don’t talk too much New or inexperienced advisers just can’t resist the urge to tell clients what they know. I understand why.

To get to a place where you really know your onions in this profession takes years and years, maybe more than a decade. As you gain new knowledge you just can’t wait to tell people about it.

However, by talking too much, telling too much, sharing too much, and showing off their technical knowledge, inexperienced advisers destroy the client experience.

2. Great advisers ask great questions If you want your client meetings to be effective and exciting for clients, the key is asking great questions.

When you ask a series of thought-provoking questions and listen carefully to the answers coming back, clients engage deeply.

Great advisers know that ‘telling is not selling’. So they ask questions and leave a lot of space for the client to respond next. They recognise that sometimes their questions require deeper thought and so, if there are big silences or gaps, they don’t jump in and fill them with the sound of their own voice.

Just like Mark Wahlberg, they know not to overplay their hand.

When I go to see my doctor she doesn’t tell me everything she knows about medicine. If she did I’d probably get bored, as opposed to being impressed, and I’d think she was showing off.

Because she’s a good doctor, she tells me what’s appropriate, and then checks in occasionally to find out if I need a bit more information.

More importantly, robo advice and technology are still an awfully long way away from doing this effectively. While many other parts of the advisory process are slowly being commoditised and reducing in value, great questions and great listening skills are not.

3. Great advisers do just enough (and not one bit more)

Many of the challenges that arise for advisers come about as a result of doing more than is necessary.

Advisers are helpful people by nature, and most of the ones that I know genuinely care about delivering something special for their clients.

True professionals Sometimes though, this have clients desire to please can get you who leave their doing too much and undoing meetings raving all of your good work.

about how they were made to feel; valued and cared for

Why? Because great questions help clients identify the real issues they’re facing. As Daniel Pink says in his book To Sell Is Human, the highest value that salespeople can add is not problem solving, as many of us were taught, rather it’s problem identification. That is, helping clients identify what the problem is in the first place. If that’s been done well the solutions are usually pretty obvious.

Trying too hard and doing too much is actually a sign of weakness. It stems from a fear of not being enough; needing to prove to yourself or to others that you’re good enough or that you know your stuff.

This is usually just your ego telling you that if you don’t do lots and lots for clients then you might miss out. Ignore it. Leave your ego at the door and focus solely on the client and their needs. It’s not easy, but it’s the best way to conduct yourself.

Ask great questions, listen, and by all means share some of your knowledge when it’s appropriate. Keep checking in with the client, asking them if you’ve given them enough or if they need more. You’ll be surprised at how little some clients need to feel comfortable.

The issue is not that there is a correct amount to share or withhold, but simply that asking clients about their requirements for information will improve your effectiveness. Being receptive to each person’s varying needs is important.

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BETTE R BUSI N ESS October 2017

The results True professionals have clients who leave their meetings raving about how they were made to feel; valued and cared for. It’s this feeling that clients remember long after they’ve forgotten everything you might have told them at a technical level.

You create this feeling by talking less and playing an understated role in your client meetings.

As Christian Bale alluded to in his acceptance speech (and I’d strongly recommend you find it on YouTube), this is hard to do. It takes a real professional to play it low key. In our profession that’s done by asking great questions, and then staying quiet and listening. There is a time and a place for talking and demonstrating knowledge, but the pros do just enough to be great. Not a bit more.

Brett is the Founder of FP Advance, the boutique consulting firm that helps financial planning professionals advise better and live better.

He is recognised as one of the leading consultants to financial advisers in the UK. Professional Adviser magazine has rated him one of the Top 50 Most Influential people in UK financial services on three occasions.

You can follow Brett online and via social media: Twitter: @brettdavidson Facebook: www.facebook.com/FPAdvanceLtd LinkedIn: www.linkedin.com/in/davidsonbrett Website: www.fpadvance.com

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MiFI D I I October 2017

MiFID II –Tightening the safety net January 2018 heralds the arrival of the MiFID II directive. Mike Wilson considers some of the details and what it might all mean in practice

At a time when Britain is grappling with the whole idea of staying within the EU and its integrated markets, both for goods and for financial institutions, there are some who wonder exactly why we are taking the European Securities and Markets Authority’s pronouncements on the MiFID II and MiFIR (its implementation mechanism) so very seriously. Aren’t we British aiming - at least officially - to run parallel with the European norms but not formally within them? And aren’t we already well ahead of MiFID II’s requirements anyway? (And haven’t we always been?)

The bigger picture The second question is easier to answer than the first.

Yes, we are indeed entitled to view London’s financial market supervision as being significantly tighter than that of Germany, say, or France – never mind Italy or Malta or Cyprus or Romania, where much more remains to be done. London’s FCA and PRA rules were among the regulatory models on which the MiFID II set-up was originally envisaged. But we forget at our peril that Brussels’ task is to implement a uniform, continent-wide minimum standard which needs to encompass a wider range of national retail and marketing models than just our own.

It would be surprising if Britain didn’t have to make some concessions to the way in which other countries do things. Some countries, for instance, initially argued (unsuccessfully, as it turned out) for the abolition of execution-only trades, or at least for restricting them to sophisticated investors: the fact that Britain’s own system was robust enough didn’t alter the fact that in other places the same could not be said for the local rules. So, up to a point, accepting the new MiFID standard was always going to involve some compromises.

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Arriving on 3rd January Either way, MiFID II is coming on 3rd January, ready or not. And the welter of new ESMA pronouncements that arrived over the summer has rightly been concentrating minds – not least, because it’s really getting rather late in the day for tweaks that will allow the industry only months in which to get its act together. Both advisers and providers have been banging on furiously at the FCA for more essential detail, and now we’re getting it. But it’s still going to be tight. And ironically, the ESMA announcement of 29th June may in fact delay the implementation of some FCA efforts to tighten the control of issues such as excessive leverage in retail products.

But we’re getting ahead of ourselves. MiFID II, as you’ll recall, aims to protect investors firstly by tightening the final delivery process (especially with regard to risky trades) and secondly by reining in certain operational phenomena such as algorithmic trading (high-speed automatic trades) and unreported off-market trades (which can distort consumers’ perceptions of what is really going on price-wise behind the scenes.) Both of these latter issues have been dealt with in generally satisfactory I FAmagazine.com

MiFI D I I October 2017

ways – there will, for instance, be far fewer places henceforth where unrecorded trades can happen.

This summer’s developments But the news since June has been about limiting the scope for investors’ losses – not so much by offering them fire insurance, but rather by removing the matchboxes in the first place. (Or some of them, anyway.) We’ll stress once again that the issue is not that Britain itself is particularly lax but that some other countries are playing to looser rules. And, of course, the Banking Passport rules can mean that once an excessively risky online instrument emerges it can be marketed throughout the trading bloc. Those fires can spread quickly.

• Firstly, ESMA wants to see a reduction in the hefty leverage available to retail investors who might not understand what they’re getting into when they use products like spread betting, binary options or contracts for difference – or for those who fall victim to gambling addictions and get into rapidly spiralling debts.

These

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products may be based on currency movements, commodity values or bond yields as well as simply share prices or indices.

• Secondly, the European authority wants to limit the ways in which some highly-leveraged products are marketed, especially to unsophisticated investors.

• But thirdly, ESMA is talking about toughening up on the obligation of financial advisers to prevent or discourage their clients from what the FCA has called “these complex, speculative products [which] are reaching a wider target market than is likely appropriate”. The Financial Times reported on 29th June that an FCA sample of 23 companies had found that “many had inadequate assessments of customers’ knowledge and experience of products, failed to give appropriate risk warnings and had poor oversight.”

For now, the CFD industry is taking ESMA’s action very seriously indeed. IG Group, the country’s largest spread better, agreed last February to stop marketing some of its binary products to new clients.

CMC markets has been talking about “limited risk accounts”. Elsewhere in Europe, providers have been proposing credit caps and other measures. But it’s the lack of a detailed game plan from ESMA that worries many. By this stage in the process, surely this sort of thing should have been clear and finalised?

Of course, no restrictions will presumably stop some sophisticated investors from simply registering themselves as “professional traders” in order to circumvent the restrictions. At least that would lighten the best-advice pressure on their advisers. But for other clients, the onus on advisers is about to get tougher. Just one more thing to worry about as we lurch unsteadily toward Brexit.

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CASH FLOW MODE LLI NG October 2017

Cashflow modelling – are you making the most of it?

Jon Rolfe, Co-Founder & Partner of Epoch Wealth Management and CEO of i4C Cashflow Software, puts forward a practical case in arguing that cashflow modelling is the key for financial planners who are looking to build strong relationships with corporate financiers As a financial planner, my client bank is predominantly made up of current business owners or private clients who I have previously helped through a business sale. These entrepreneurial clients tend to be hard-nosed, difficult to please and can smell hogwash a mile off.

The main reason I have success with this type of client is due to using cashflow modelling software. This allows me to communicate clearly with them about why they’re doing what they’re doing. More importantly, it allows us to demonstrate very clearly what they are missing out on by continuing to do what they’re doing.

The best source of introductions of this type of client is via referrals which have come from corporate financiers whose role it is to help facilitate the sale of businesses. The significant reason for this is that we help them bring their deal flow forward and this is achieved through cashflow modelling. If your client doesn’t actually need to work for longer to achieve their goals, then why hold out for a sale that might go away or miss out on a life doing what they really want to do?

What’s the “number ”?

In reality, business valuations are often subjective and clients tend to pick their ‘magic number’ (how much they want from the business sale to live the life they want to) from thin air.

But this is like looking down a telescope the wrong way; the outcome is far from certain and whilst it could work, it’s at what cost?

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We have designed our cashflow software to help put some science behind the ‘magic number’ analysis. I suggest that there are three primary benefits for financial planners and clients, that using cashflow modelling brings to a business sale case as I outline below.

If your client doesn’t actually need to work for longer to achieve their goals, then why hold out for a sale that might go away or miss out on a life doing what they really want to do?

The benefits of using cashflow modelling 1. It allows us to show our client the opportunity cost of waiting in order to hopefully achieve “full” value and comparing this to selling their business for a more achievable sum sooner. When you sit down with a business owner and start talking to them about what they want to do post-sale, they start thinking about things like that chalet in Verbier, that round the world trip they have always wanted to do or that buffer they need to ‘go it again’. At this point, the business owner has, in part at least, subconsciously checked out as the excitement of what lies ahead starts to kick in. This makes them much more susceptible to an earlier business sale than originally planned.

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2. The ‘magic number’ we agree upon is rarely higher than the number the client previously had in their head. This means that they should be able to sell sooner than originally planned and with a level of comfort they previously could have only dreamed of.

To help bring this to life, let me use an example. In a recent case, an extremely unhappy and stressed client who was originally offered a sum for their business engaged with us following a substantial fall in the offer. We were able to demonstrate that this new amount was still more than enough to meet their life goals and a deal, which was otherwise at risk, proceeded. A stressed client was now a happy client.

All too often, clients will only seek financial planning advice once the business sale has gone through — and, by this point, some of the potential planning opportunities have been closed

Timely advice maximises opportunities for clients The added benefit to the client is that we can then look to ensure that any potential IHT planning is considered before the business sale. All too often clients will only seek financial planning advice once the business sale has gone through and, by this point, some of the potential planning opportunities have been closed. The earlier we can get involved in the process the better.

This process is not only life changing for the client and beneficial for the corporate financiers and other professional services but is brilliant as a source of top-end clients who have strong buy-in to our approach as they have experienced first-hand the benefit that sound financial planning via cashflow modelling can bring.

Jon has been instrumental in designing i4C so that sophisticated cashflow modelling is made easy and allows advisers to clearly demonstrate the impact of their advice.

3. When a business sale involves two or more parties, we will look to run magic number analysis separately and concurrently. If the numbers are sufficiently close, we will then look to work together to see if there is a compromise that can be agreed. If the numbers are sufficiently far apart, we can work to create a two (or more) step sale process so all clients can meet their objectives. This clarity in planning helps to avoid messy in-fighting between business owners at what should be one of the happiest points in their lives. This also means that we have the opportunity to plan with all parties involved in the sale.

About Jon Rolfe Jon is the Co-founder & Partner of Epoch Wealth Management and CEO of i4C. He has been a financial adviser for almost 20 years. Jon considers himself a cashflow evangelist, having seen firsthand the transformational impact that it has had; mostly the comfort it brings his clients who are faced with difficult financial decisions but also the way it has transformed Epoch’s business.

Jon believes that the adviser market is at a tipping point of an industry-wide technological change, similar to that seen with wraps / platforms, as firms will have to fully embrace cashflow modelling if they want to survive.

Jon is also convinced that firms are only scratching the surface in terms of the benefits that cashflow modelling can offer to both advisers and their clients.

Email: jon@epochwm.co.uk Website: www.i4csoftware.co.uk

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DECI DI NG ON AN N U ITI ES October 2017

Deciding on annuities: Would time travel help?

Will Jodie Whitaker, the 13th Doctor Who, also be an annuity enthusiast? She probably will, says Patrick Ingram, Retirement & Investment Specialist at Parmenion.

When Dr Who first aired in 1963, William Hartnell was only 55 years old. He may well have considered investing in an annuity when he retired.

Of course, among Time Lords, who tend to be extremely long lived, a purchased life annuity is a very popular choice for retirement income.

However, there is one exasperating catch for annuitants born on Gallifrey. They do have to repeatedly verify their identity and pass AML checks after each regeneration. Will Jodie Whitaker, the 13th Doctor, also be an annuity enthusiast? She probably will, is my answer.

In short, our view is that annuities remain an important and attractive option for many of us in retirement, and should not be overlooked or ignored, especially for clients with low-risk tolerance or poor understanding of investments (financial capability).

Loss aversion

It is probably true that the principal reason for the fall in levels of annuity purchase is the powerful psychological appeal of being able to keep hold of your money

Attractions of guarantees Since pensions freedom, the volume of annuities sold in the UK has fallen sharply from a level of around £7bn just before the changes to around £5bn in 2016. Could the trend in sales recover?

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It is probably true that the principal reason for the fall in levels of annuity purchase is the powerful psychological appeal of being able to keep hold of your money. This is a key factor for some in the defined benefits transfer dynamic.

Unfortunately, our fallible human equipment makes us prey to a number of weaknesses. George Osborne encouraged one of these when he spoke of pensioners buying a Lamborghini. Some people can’t stop spending and excuse these bad habits when doing mental

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forecasts by ‘hyperbolic discounting’ of future liabilities, almost waving them away. This is another ‘behavioural bias’, along with lack of empathy for future self. These biases form part of a landscape in which a bird in the hand seems better than two invested in the market.

Present value analysis So are annuities providing good value on a discounted cash flow basis? Taking a look at annuity rates provides us with figures on single lives without escalation, guarantee or inflation uplift, of £5,370 at age 65 and £6,917 at 75. If that £100,000 annuity cost was invested instead in a UK gilt portfolio (with no risk to capital) and stripped down at the amount each year, how long would the money last? Yields on 25-year gilts are currently around 1.7%. Using this discount rate, and taking out £5,370 a year, the capital would last just a little over 22 years, and £6,917 would carry the investor for 16 and a half.

Life expectancy Life expectancy at 65, well covered by ONS data, allows us to check the odds of an individual surviving for 22 years. At first glance, the conclusion is that the annuity looks a poor deal. The average UK male of 65 lives till 83 (18 years) and the average lady to 86 (21 years). How might it make any sense to buy the annuity?

Returning to Jodie Whitaker’s case, the answer lies in a rational consideration of the risk of living well past average mortality. If she believes she will be among the 25% of women living to 93 – or more – the investment analysis changes dramatically. The present value of £5,370 a year from a gilt portfolio to last from 65 to 93 is over £124,000, making that £100,000 annuity purchase cost look compelling. Making it to 100, to get the telegram, and the discounted value of the income stream increases to a handsome £146,000.

A further point. Most advisers work with wealthier, therefore healthier people. The average numbers include all those whose lives have been less fortunate.

Present value of £5,370 annuity (cost £100,000) from age 65 discounted at 1.7% to ages stated 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Age 75

Age 80

Age 83

Age 85

Age 90

Age 93

Age 95

Age 100

Source: Parmenion, 2017

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DECI DI NG TITLE ON AN N U ITI ES October 2017

It’s not a man’s world

Exterminate

For men, who don’t live as long, these are substantially less likely outcomes. For every man reaching 100, nearly three women are living that long. This has a particular bearing on decisions about annuities part way through retirement.

Without a full working Tardis, our assessment of the future is an imperfect art. What is clear from some of these insights is that there will be many happy nonagenarians congratulating themselves on buying annuities in their later 70s, with few grounds for complaint. Many of those who might feel aggrieved by the decision will not be around to complain (unless they can regenerate).

Using the figure above, a man taking a life time income of £6,917 at 75, assessed against the same gilt yield, must live till nearly 91 to break even, something only a quarter of men are likely to achieve, but 35% of women can expect to do. In fact, the average male at 75 can’t expect to live beyond 86 – just 11 years. What future for the 2012 EU Gender Directive, we have to ask?

Unhappily, the incensed family and friends of the unsuccessful 90-year investor with no secure income will, I imagine, be loud in their calls for redress.

About Patrick Ingram Patrick is Parmenion’s Retirement and Investment Specialist and joined the group in 2009. He has experience of private client discretionary management and wealth management consolidation, in a number of AIM quoted companies.

He was previously CEO of Rowan & Co and Finance Director of Seymour Pierce Group plc. Patrick graduated with degree in History from Oxford University in 1981, trained as a Chartered Accountant with KPMG, and holds the ASIP investment research qualification.

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ACQUISITION AND SALES

O F I FA BUSINESSES Retirement?

Time for a change?

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

W E A RE A S P E C I A L I ST F I N A N C I A L S A L E S , CO NS U LTANCY AND BRO KE RAGE BUSINESS. Gunner & Co.’s mission is to work directly with you, whether you are looking to realise the capital in your business, or you are looking for growth through a merger or acquisition.

We consider every business to be unique, and therefore finding the right solution for you starts with a thorough understanding of your business operations and your wish list.

Only from here can we make valuable introductions which align to both party’s needs.

If you would like to discuss options to sell, exit or retire, or acquire IFA businesses, please get in touch for a confidential discussion.

louise.jeffreys@gunnerandco.com

gunnerandco.com

RICHARD HARVEY October 2017

How soon is now?

Tomorrow’s pensioners are facing an increasingly tough task in funding a decent standard of living in retirement.

Richard Harvey voices concerns that the problems are just not being properly addressed

You would have thought that all the time and money poured into encouraging younger people to save for retirement would, by now, have them dutifully tucking away money like a squirrel hoarding its nuts (if you'll excuse the simile).

Well, maybe some are. But it is estimated that almost a half of all 22 to 29-year-olds will opt out of their workplace pensions next year, with even more following as their contributions increase to five percent of salary in 2019. So all those 'We're In' TV campaigns are hardly an ocean-going success.

Ken Tymms, founder of workplace pension specialists Kent Pension Services recently told me: "The younger generation is not stupid. They will get the importance of pension planning if someone explains the issues. Trouble is, nobody is telling them.

"Unfortunately auto enrolment is seen by most employers as simply a compliance issue, and The Pensions Regulator has done very little to stimulate a more benefit orientated approach.

"It was always the intention of the Pension Commission (which gave birth to auto enrolment) that the relationship between employers and staff would promote the need to save for the long term, but there is no evidence that that is really happening."

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A State Pension – but not as we know it Meanwhile, the government has announced the qualifying age for the State Pension will rise to 68 by 2037, and it's a racing certainty this will increase even further.

There are plenty of commentators who believe that in 20 years’ time the State Pension will be means tested, and reserved for the poorest in society

If, of course, the State Pension exists in its current form by then. And that's a big If. There are plenty of commentators who believe that in 20 years’ time the State Pension will be means tested, and reserved for the poorest in society (although current levels of £8,000 a year will ensure they remain poor).

IFAs to connect with anyone younger, than, say 45, and show them the benefits of putting some money aside regularly in an attractive, inexpensive, pension plan. Even that will be as easy as juggling soot.

What with saving for a property, or paying a mortgage; putting food on the table and raising kids; and then spending a proportion of their income on simply having a good time (and who can quibble with that?), most sub-45s haven't a dog's chance of putting anything sensible aside for retirement, unaware of how quickly later life will creep up on them and leave a huge financial gap with precious little to fill it. It’s a serious problem that’s for sure.

I'm quite sure every politician in the land, if asked about their views on future pension arrangements, would feel as if they were on the deck of the Titanic, with the iceberg looming closer.

So on the face of it, there are plenty of opportunities for

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RICHARD HARVEY October 2017

Transferring out of DB schemes But considering MPs and many public sector employees are in guaranteed, index-linked, gold-plated "I'm All Right Jack" pension schemes (just ignore for the moment that they are entirely unfunded), it's a thorny issue which won't affect them personally. So rearrange the following into a well known phrase or saying: "long grass", "into the", "kick it".

There are, of course, some in the private sector lucky enough to be in company defined-benefit pension schemes. Unbelievably, and as many advisers will know from first-hand experience, some employees or former employees have transferred out of these, under pension freedom rules, and are sticking their money into plans with greater flexibility in order to benefit from ostensibly higher returns.

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I'm quite sure every politician in the land, if asked about their views on future pension arrangements, would feel as if they were on the deck of the Titanic, with the iceberg looming closer

That seems to me to be the equivalent of not just looking the gift horse in the mouth, but smacking it in the kisser as well.

It is certainly not without risk.

transfer offers of 50 times their projected annual income - several million quid in the case of very senior executives.

An estimated ÂŁ50bn has been pulled out of these increasingly rare company pension schemes, and the FCA has finally come lumbering over the hill to warn against the risk to clients' transferred money.

So, on the one hand you have those for whom their employers will provide some kind of pension when they retire, others who are nicely sorted with gold-plated schemes - and the rest of us, faced with a whole world of uncertainty. The need for sound financial advice has never been greater and it is needed very urgently indeed.

The FT reports that companies keen to reduce their pension liabilities, are wooing final salary scheme members with

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CAREER OPPORTUNITIES Position: Private Client Consultant (IFA) Location: Oxford Reading and Nottingham areas Salary: £50,000 - £55,000 The business: This multi-award winning Financial Planning practice has with offices nationwide.

They provide advice to private clients as well as businesses.

The opportunity: An opportunity has arisen for an experienced financial adviser to join the team. You will benefit from an existing client bank and leads from 3 professional practices in Oxford, Nottingham and Reading.

What’s needed for me to be considered?

• Level 4 Diploma Qualified as a minimum • Proven experience as a successful IF

Position: Training and Competence Officer Location: Cheltenham Salary: £40,000 - £50,000 The business: This is a growing practice with a great industry name, focus on providing a highly personalised financial planning and investment management service with the clients’ needs put at the heart of everything they do.

The opportunity: The role is an integral part of the sales team, reporting directly in to the financial planning director. The role is to effectively deliver the T&C requirements of the firm, and includes conducting all T&C activities on a day to day basis, as well as an element of sales management and IFA development and training.

The role will also support sales management and effectively interact with other departments, in particular with the compliance and technical teams.

What’s needed for me to be considered?

•

Level 4 Diploma qualified and keen to progress towards the Chartered Status

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Previous experience within a fast-paced IFA practice is desirable

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J07 & AF6 qualifications would be advantageous

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High level of analytical capability and good communication skills

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Previous T&C and sales management experience

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Excellent interpersonal, listening, numerical and IT skills

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Good organisational, time management skills and effective caseload management

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Professional, ethical and discreet

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Position: Paraplanner Location: Milton Keynes Salary: £30,000 – £40,000 The business: This international Wealth Management practice provides a highly personalised financial planning and investment management service to clients.

The opportunity: During a period of expansion, they are looking for a paraplanner to support their successful financial planners. The firm has the flexibility to mould the perfect opportunity around each person’s specific skillset, so the role can be tailored to exactly what you want. You will have the opportunity to work in a supportive team environment where progression is strongly supported.

What’s needed to be considered?

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Level 4 Diploma qualified or working towards this

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Previous experience within a fast-paced IFA Practice

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High level of analytical capability and good communication skills

Position: Paraplanner Location: Liverpool Salary: £25,000 - £27,000 The business: An award winning Chartered Financial Planning firm that has achieved unprecedented success in recent years and currently holds several unique accolades. This company focuses on providing a personalised and highly professional service to HNW clientele that has resulted in consistent growth and high client retention. Known for having an excellent reputation in the industry as well as investing heavily in the development and wellbeing of their staff, this firm is an excellent place to build a career.

The opportunity: Due to business growth and internal progression of existing employees, this company seeks a paraplanner to join their highly experienced and supportive team. You will be supporting several advisers and their HNW clientele and will have the opportunity to work on a diverse range of business. You will receive training and exam support as well as future progression opportunities within the business.

What’s needed for me to be considered?

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Hold level 4 Diploma in Financial Planning

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Progression towards Level 6 (advantageous)

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Broad market knowledge of financial services and products

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Previous experience supporting IFAs within a regulated environment

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Previous paraplanning experience

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Position: Technical Paraplanner Location: Southport Salary: £30,000 - £45,000 The business: This very well established independent financial planning firm has clients based all over the UK. They pride themselves on being able to offer a genuinely bespoke service from a very highly qualified back office team and several chartered IFAs. The opportunity: This is an exciting opportunity to join a forward thinking and innovative Financial Planning firm as a technical, client facing paraplanner providing vital support to the partners of the firm. The successful candidate will be responsible for providing a professional and holistic financial planning service to high net worth private clients. This will include technical research and analysis, client case analysis and on-going review, compliance related projects and preparation of reports and technical briefings.

You will be expected to attend client meetings and build relationships to make sure that you are providing the best, most suitable recommendations to each and every client.

What’s needed for me to be considered?

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Must hold a minimum of the Diploma in Financial Planning and aspire to Chartered Financial Planner status.

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Experience of providing back office support within an IFA firm

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Strong administrative, research, report writing and communication skills.

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Excellent analytical skills and prefer to work in a structured, planned manner.

Position: Trainee IFA Location: London Salary: £28,000 - £30,000 The business: This well respected IFA practice seeks to build a long term, trusting relationships with their clients by embracing the use of new technology as well as the service of their well-qualified support team assisting the IFA’s to make the best decisions for their clients. They provide tailored financial planning advice and really go the extra mile to provide a personalised service. The business has multiple offices across the UK. The opportunity: You will be working in a client facing role handling both paraplanning and advising duties to new and existing clients. This is a unique role for someone who is looking to transition from a support role into a client-facing position and to develop their career as a financial adviser.

What’s needed for me to be considered?

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Experience of providing paraplanning support to IFAs is desirable.

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Level 4 diploma qualified and keen to build upon this qualification

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Driven, motivated and ambitious individual who has strong interpersonal skills.

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Position: Paraplanner Location: Farnborough Salary: £35,000 - £40,000 The business: This multi-award winning Financial Planning practice specialises in providing tailored financial advice to private clients across the UK as well as some of its largest businesses.

The opportunity: Due to expansion within the business, the company are looking for an experienced paraplanner to join the back-office team. This is an opportunity for someone who is looking to share ideas with experienced professionals and feel valued within a tight knit team.

•

What’s needed for me to be considered?

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Previous paraplanning experience, preferably including pension advice

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Diploma qualified with an interest to work towards Chartered status

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Attention to detail and the ability to explain complex information clearly and simply is key

Position: Investment Sales Support Location: London Salary: £23,000 - £26,000 The business: This is a forward thinking and highly successful financial planning and investment company that has a substantial amount of HNW clients across the UK. This company focuses on helping their clients achieve their financial goals through personalised and holistic advice.

The Opportunity: Due to business growth and an increased demand on their services, this company is now looking to welcome and experienced paraplanner to the team who would be comfortable supporting several highly successful wealth managers and their clients. You will be responsible for supporting chartered wealth managers with full paraplanning support.

Over the long term the role allows for internal progression and developing a team as the business grows.

What’s needed for me to be considered?

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Hold level 4 Diploma in financial planning (CII/CISI or equivalent)

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Previous experience of supporting IFAs or Wealth Managers with full paraplanning support

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Knowledge of pensions, ISAs, GIAs, on/offshore bonds and IHT products

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Experience drafting compliant suitability reports

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Knowledge of the financial planning process, and broad market knowledge of financial services/products

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Position: Regional Sales Manager Location: South West (Devon/Cornwall/Gloucester/Somerset/South Wales) Salary: £45,000 - £55,000 + Bonus + Benefits + Car Allowance The role: A fantastic opportunity has arisen with a group of companies based within the South West for a Regional Sales Manager. The manager will develop and maintain enduring relationships with targeted financial advisers with the objective of achieving new business production in line with targets.

This is an exciting company with ambitious long-term growth plans, thus an excellent chance to be at the forefront of this growth whilst working amongst a hardworking and driven team.

An Ideal candidate will have experience in a similar position or as a Business Development Manager for an IFA / Financial Planners, and have the desire or will have already achieved their Level 4 Diploma.

Key attributes and qualifications: •

At least 5 years’ sales experience in the financial services sector

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Level 4 Diploma in Financial Services or equivalent

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Good English and mathematical skills

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Able to communicate and present clearly and concisely to individuals and groups

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Good analytical skills

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Working within highly regulated environment

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Organizational and planning skills

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Ability to work remotely

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Self-motivated and tenacious

• Professionalism

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Position: Senior IFA Administrator Location: London Salary: £25,000 - £35,000 The business: This is a well-established financial services practice which provides a highly personalised financial planning and investment management service.

The opportunity: They seek an administrator to provide high quality technical administration and analytical support to their financial planners. The firm has the flexibility to mould the perfect opportunity around each person’s specific skillset, so the role can be tailored to exactly what you want. You will have the opportunity to work in a supportive team environment where progression is strongly supported.

What’s needed to be considered: •

Previous experience within a financial planning role

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Professional communication manner, both written and verbally

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Relevant financial services qualifications are desired

And also…

If these specific vacancies are not exactly what you are looking for, please contact us to discuss other opportunities we may be recruiting for that aren’t necessarily advertised. Additionally, refer a friend or colleague to us and receive £200 in vouchers if we assist them in securing a new career.

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