IFA Magazine - Issue 53 - November 2016

For today’s discerning financial and investment professional

TRUMP AND JUDY

November 2016

N EWS

REVI EWS

ISSU E 53

COM M E NT

ANALYSIS

CONTE NTS November 2016

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CONTRI BUTORS

Editor’s Welcome

6 Brian Tora

News

an Associate with investment managers J M Finn & Co.

ER OPPORTUNITIES Richard Harvey

a distinguished independent PR and media consultant.

10 Great Expectations – what next for the UK economy?

13 Better Business - Are You Fake Busy?

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

18 Adviser Spotlight – Anna Sofat, Addidi Wealth

Michelle McGagh brings a wealth of experience on industry developments.

22 Auto-enrolment and the changing way we work

Michael Wilson Editor-in-Chief editor ifamagazine.com

26 The economics of online advice

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Sue Whitbread Commissioning Editor sue.whitbread ifamagazine.com

Alex Sullivan Publishing Director alex.sullivan ifamagazine.com

Kath Morgans Head of Events kath.morgans ifamagazine.com

Standing Tall Together

32 Investment in an uncertain world – the role of structured products

36 UK Equities - Where Next?

42 Safety first?

IFA Magazine is published by IFA Magazine Publications Ltd, The Tobacco Factory, Loft 3, Bristol BS3 1TF Tel: +44 (0) 1179 089686 © 2016. 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

44 That’s the Way to Do It!

48 The latest specialist adviser opportunities

E D'S WE LCOM E November 2016

Maggie May?

Fair’s fair. It can’t be easy being Britain’s second female prime minister when the first one made such a momentous mark on history. But has Theresa May been picking up on some of the less wonderful features of her eminent predecessor?

That thought has been coming back to me in the last couple of months, as Prime Minister May grapples with the dreadful burden of getting Britain out of the European Union. Yes, it’s pretty tough having to implement a 52-48 decision to Leave when you were one of the Remainers, so all credit to her for that. But what’s that funny little echo I can hear from the back of the room? Is it really saying: “There Is No Alternative”?

Why are we being denied the parliamentary scrutiny that such a momentous upheaval in our industry would normally be expected to entail? Is it really good enough to be told that Westminster will be given a late chance to review the Brexit plans once they’ve been finalised? The personal finance sector needs to know, and so do the major banks and insurance institutions on whom London’s reputation and status depend.

Not least, because the longer it takes for the details to emerge, the greater the likelihood that

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both banks and fund institutions will simply up sticks to Paris or Frankfurt, just in case?

The City is already rife with rumours of major organisations scoping out the alternatives within the Eurozone. Scottish institutions, which are feeling particularly aggrieved about the Leave vote, are among the reputed prime movers.

Deep in the Back Rooms, Something Stirs Aaah, say the PM’s defenders, we’ve got that one covered. In the last couple of weeks the PM has been dropping heavy hints that she’s prepared to consider a sizeable contribution to the EU’s coffers for the right to maintain the EU banking passport for British institutions, even if we do crash out of the Single Market with a so-called hard Brexit. As seems increasingly likely.

That sounds good to me, even if it appals David Davis, the Secretary of State for Exiting the European Union. (That’s his official title, by the way.) What worries the core Brexiteers is that there is no daylight-clear channel through which the payments could be made. According to the Financial Times on 16th October, the measures being examined for “finessing” future payments might include a bigger-thanexpected contribution to EU

security programmes, or perhaps using the aid budget to fund European projects?

Don’t get me wrong, we’re not into FIFA-style brown-envelope territory yet, but if Mrs May is really going into this sort of backdoor cash-transfer thing then we deserve to be kept informed. Even the most government-friendly think tanks, such as the Brexit-neutral Open Europe (whose co-director is now advising Mr Davis) have warned the Premier that UK banks might start making practical moves to decamp from the UK as early as the end of 2017 unless the government can reach a deal that maintains their passporting rights. (And, as Open Europe pointedly adds, if they leave they might just as easily choose Singapore as Frankfurt, so Europe wouldn’t gain either.)

Handbags at Dawn All very reassuring, not. But Mrs May’s insistence on keeping the Brexit discussions close to her own chest has some very Maggieish overtones. She might wear kitten heels where the late Mrs Thatcher sported a handbag with a reputed half-brick in it (only joking, ma’am), but the message is the same. Hands off, I’m in charge. Why does that worry me?

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N EWS November 2016

The cost of a passport The progress toward Brexit continues at a lurching pace, but it isn’t all bad news. On the minus side, Prime Minister Theresa May has incensed some parliamentarians with her refusal to discuss the details of her government’s proposals until after they’ve been finalised.

(They will, however, be getting a vote later on the salient parts, she says.)

On the plus side, however, the Financial Times reported that the Premier has suggested that she might after all be willing to pay for UK financial institutions to enjoy continued access to the European Single Market for financial services.

On the face of it, a “hard Brexit” (ie an EU exit with no British membership of the Single Market) would appear to spell

the end of the passporting rights that currently allow UK institutions to market throughout the EU (and, by extension, to the extended European Economic Area that includes Switzerland, Norway and others.) However, the FT reports that Mrs May has been dropping heavy hints that she will indeed cough up for the retention of passporting rights.

This will be good news for Oliver Letwin, David Cameron’s former policy chief, who was quoted as saying: “If we have to buy this market access by making continuing contributions to EU budgets, that may well be a price worth paying, given the number of UK jobs that are involved.” It will, however, annoy the hard-line Brexiteers in Westminster who favour a more absolutist approach.

PERFORMANCE SO BORING YOUR CLIENTS WILL SMILE.

Government abandons plans for annuity resale market In what has been viewed by many as a practical decision, the government has changed its mind on giving pensioners the right to sell their annuity back to the insurance company. The change was due to take effect in April 2017. It was based on the idea which was first announced in the March 2015 Budget by the then Chancellor George Osborne as part of his plan for "pension freedoms". Consumer protection was the government’s main concern in that if this facility was to go ahead, pensioners might be encouraged into making the wrong decisions and suffer high costs.

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N EWS November 2016

Happy days are here again previous months. And, according to Ian Stewart, chief economist at Deloitte: “UK consumers seem unperturbed by financial market and emerging economy weakness that have dampened sentiment in the corporate sector.

For consumers the good news on rising real wages and improving job security trump the bad news from the global economy.”

Or so the latest from Deloitte’s consumer tracker would have us believe. The company’s latest survey of 3,000 households revealed that Britons were more optimistic about their finances during in the three months to September than at any time since 2011 when the survey began.

All of this would probably come as a surprise to the Bank of England economists who’ve

been reporting falling consumer sales since the June Brexit vote.

BoE Governor Mark Carney has already said that inflation will now rise, perhaps above the (2%) target, as the weakness of sterling pushes up the price of food and fuel.

But there it is: September CPI inflation was lightly negative, probably because of low consumer demand in the

“The Tracker also shows that more consumers are receiving pay rises or bonuses. {And} consumer firepower is being bolstered by a decline in savings and rising borrowing. Our polling reveals that consumers are saving less now than at any time in the last five years and that borrowing has risen through this year.”

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N EWS November 2016

Study shows Brexit tops list of DFM concerns A CoreData Research study based on interviews with 92 DFMs shows 69% think Brexit poses a threat to investments, with around half citing weak global GDP growth (55%) and geopolitical instability (52%).

A recent study reveals Brexit is the biggest investment concern for discretionary fund managers (DFMs) who are particularly pessimistic about the outlook for UK equities in the wake of the EU referendum.

The interviews, carried out in August, asked DFMs to select the three biggest factors that could negatively impact investments with 65% believing the decision does not improve the outlook for the asset class in the longterm. But DFMs also appear to accept that Brexit will not have an immediate impact, with just 37% considering reducing their exposure to UK equities prior to the triggering of Article 50.

International equities emerge as the biggest winner, with 70% of

DFMs saying they will be the best performing asset class once the Brexit dust has settled. Just 16% of respondents think UK equities will be the best performing asset class post-Brexit. However, this is higher than the combined number that expect alternatives (8%), fixed income (3%) and property (3%) to be the strongest performers, highlighting a preference for equities over other asset classes.

The vote to leave the EU, coupled with wider global uncertainty, has also pushed risk to the forefront of DFM thinking.

Eight in ten (81%) DFMs say they will prioritise risk within client portfolios over the next 12 months.

FCA publishes findings of thematic review of non-advised annuity sales – there are concerns Although the FCA has found no evidence of industry-wide, or systemic failure to provide customers with sufficient information about enhanced annuities through non-advised sales, there are concerns that some communication failings took place at a small number of firms.

The FCA has asked these firms to carry out a more extensive review of non-advised sales and to provide redress where appropriate. They are also being investigated by the FCA’s Enforcement Division to determine whether further action is necessary.

Generally, the FCA found many of the firms provided clear and

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comprehensive information to customers with written communication tending to meet the standards required.

Megan Butler, director of supervision – investment, wholesale and specialist at the FCA said: “Annuities play an important role in providing an income for retirement. It is important that consumers get the right information at the right time in order to make the right decision for their retirement.

“While we have found particularly poor behaviour at a small number of firms, there is no evidence that firms have systemically failed to provide customers with the information required by our rules. Firms,

particularly those outside our sample, should look at the report we have published today and consider whether they can make improvements.”

Head of retirement policy at Hargreaves Lansdown Tom McPhail commented: “The FCA’s review has given the non-advised annuity sector a reasonably clean bill of health however they also found some failings which for a minority of customers may eventually lead to their getting some compensation. They also found that even where insurance companies follow the letter of the regulations, they still don’t always communicate effectively with their customers.”

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N EWS November 2016

The EIS Yearbook for 2016/17 is available now of EIS and VCT products, together with an up-to-date listing of issues which are currently open for subscription as well as tax information.

£1.8 billion worth of EIS investment can’t be wrong. That’s the astonishing volume of money that flowed into the small and medium cap company sector via the Enterprise Investment Scheme during 2015/16 – marking a threefold increase on the levels of 2010/11. Plus another £400 million or so per annum for venture capital trusts, and an explosive market for Seed EIS, crowdfunded startups and all the rest. The total EIS investment since 1994 has grown to more than £14 billion, benefiting some 25,000 SMEs. Given this buoyant market, the publication of the 2016/17 EIS Yearbook by our sister publication EIS Magazine, features in-depth coverage of the major issues affecting this dynamic and rapidly growing sector.

In-Depth Coverage The yearbook is carefully designed to provide an essential reference guide for financial advisers, wealth managers and investment management professionals.

In it, readers will find fund profiles, incisive commentary from Britain’s premier providers

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As Prime Minister Theresa May moves into the autumn season with her eyes fixed firmly on the future, it’s no surprise that she’s been at pains to stress her government’s continuing commitment to the small and mid-cap company sector where a very great deal of Britain’s employment gains are being made. Small and medium-cap firms are consistently outpointing the Footsie in all departments.

But the EIS/SEIS/VCT sector still remains a mystery to many advisers. How do you carry out effective due diligence in the sector? How can you diversify effectively and how can you minimise the overall risks? Which clients should be looking at EIS, and which ones really shouldn’t? It is answers to key questions like these and more, which the yearbook tackles, giving advisers all the information they need when considering these attractive investments from concept right through to exit.

Bit better The bitcoin price continued to improve during the third quarter, albeit hesitantly, as the electronic alternative currency overcame two colossal setbacks that had blighted its performance. First, the Hong Kong-based bitcoin exchange Bitfinex, one of the most heavily traded on the global network, had been forced to close for a more than a week after being hacked – thus forcing bankers all over the world to bone up hurriedly on the blocktrade principle. And then there were the worries about the health of Deutsche Bank, which (according to CNBC) had $16 bn of assets against $160 bn of debt liabilities, and which was said to be facing a potential $14 billion fine from the US government in relation to its mortgage lending activities during the housing bubble.

Still, it’s an ill wind. Bitcoin enthusiasts were heard to say that a crash at DB would benefit the alternative currency, which wasn’t correlated to the conventional markets at all. A factor which may prove to be a double-edged sword. Bitcoin prices in the last 12 months have lurched between $262 and $768, and were $630 at the time of writing. Are you feeling lucky, punk?

Written since the landmark referendum result in June, the yearbook contains expert analysis which explores and explains why government backed investments are central to current and future growth of British business. This year more than ever the yearbook is a go-to guide and a must read.

IFA Magazine subscribers will have received their own copies of the yearbook in the post, but the issue is also available from www. eismagazine.com

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BRIAN TORA November 2016

Great Expectations – what next for the U K economy?

From flash crash to cash – as a hard Brexit now looks more likely, Brian Tora takes a look at what is happening to the U K economy with all the uncertainty from the U K’s vote to leave the E U. And confesses that his crystal ball is somewhat opaque

Nobody can accuse the investment game of being dull at present. Since the surprise decision of the British people to opt for leaving the European Union, the FTSE 100 Share Index has flirted with its all time high, while sterling has sunk to a 31 year low against the dollar and at one stage was at an all time low against the euro. Arguably that is good for exporters, but it is a bit of a trial if, like me, you are paying local builders in euros to complete the renovation of a property on the continent.

What would a hard Brexit mean?

EasyJet said it all when it published some disappointing results recently. Brexit is making their life tougher and the slide in the pound is simply adding to their woes. There will be other companies similarly affected and we have yet to see if the higher cost of holidays abroad will lead to fewer taking the trip to the sun. Of even more importance is whether a hard Brexit will lead to

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lost business opportunities and more difficult trade terms. The next couple of years promise to be interesting, to say the least.

Frankly, my crystal ball is decidedly opaque right now, but it seems inconceivable that the cloud persisting over our currency is likely to disperse any time soon

Markets hate uncertainty The rise in shares and the fall in the pound are both easy to explain, even if such a reaction can appear perverse. Sterling fell because of the uncertainty created by an unexpected decision to leave the EU. Markets, particularly foreign exchange, hate uncertainty, so traders dump

the currency at risk. These days such decisions are, as like as not, the result of an algorithm which tracks news on likely influences.

For example, a “flash crash” in sterling earlier in October was blamed on computers picking up on Francoise Hollande stating that Britain should not receive any favours on exit, though a fat finger trade in Singapore looks as likely.

The pound certainly developed the jitters in the wake of the Conservative party conference, when our new Prime Minister took a firm line on our leaving negotiations and set a date for them to commence. Suddenly markets took on board that Brexit was real. And May’s comments were, unsurprisingly, interpreted as inviting a tough line back from our soon to be ex partners in the single market.

Sterling, which had already suffered in the wake of the referendum decision, dropped further. The realities of what life outside the EU might mean were beginning to sink in.

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BRIAN TORA November 2016

But a weaker pound helps the Footsie. The top 100 companies listed on the London Stock Exchange are multinational giants, many earning the bulk of their profits overseas. Not only are they relatively unaffected by any perception of a slowdown in the British economy (though there is no evidence for this – yet), but the profits they earn in dollars or euros are suddenly worth that much more when converted back into sterling.

It’s an ill wind…

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Back to the future It is to the future we need to look, though. Frankly, my crystal ball is decidedly opaque right now, but it seems inconceivable that the cloud persisting over our currency is likely to disperse any time soon. This may mean little for those invested abroad or holding market leader funds here, but smaller companies may find the adverse winds of opinion blowing against them. Of course, this may well turn out to be an unfair judgment – on both counts – but markets are often more emotional than rational.

The trouble is that it will take time to know with any degree of certainty how the future will pan out for UK plc and the good companies that sail in her, but most investors will not sit back and take the longer view because of the perceived risks.

UK financial services business under threat Let’s look at financial services.

Once upon a time banks were the largest constituent of the FTSE 100 Share Index, but the collapse of Northern Rock and Lehman Brothers put paid to that. They

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BRIAN TORA November 2016

are, though massive contributors to the wealth of our nation, along with the investment management companies, insurance firms and other ancilliary businesses, many members of which will be reading this article, that go to support our position as the leading financial centre in Europe.

Already we learn that plans are being developed to take at least part of the UK based operations of these companies into a European financial centre where they can retain the passporting advantages that may be lost by our departure from the EU. Paris and Frankfurt are well aware of the opportunities that might open up, so you can expect some heavy lobbying in these areas.

In other words, Brexit could see some tough – and unpleasant, for us – conditions being imposed upon us. Goldman Sachs has warned of 2000 job losses in London if conditions are tough.

A tough EU stance is likely Part of the problem lies in an uncertain political environment in Europe – not that the situation at home is that straight forward.

Germany and France are both due to hold elections next year. The immigration issue is clouding both campaigns – but then arguably that is what swung our own result to the leave side. Changes in the outcome in either country – less likely in Germany than France

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– could shift attitudes. Other EU countries have their own concerns - witness the Hungarian referendum – but Brexit negotiators on the EU side will be anxious to deliver a message stating that leaving ain’t easy.

Creeping federalisation It is worth remembering, though, that a strong part of the argument put forward by Brexiteers was the unsustainability of the current model for the European Union.

A single currency has always

Part of the problem lies in an uncertain political environment in Europe – not that the situation at home is that straight forward

been viewed as a potential Achilles Heel. Professor Tim Congden once remarked to me that it couldn’t happen. When, later, I pointed out he had underestimated the political will to introduce it, he unrepentantly said it wouldn’t work. And it still may not, without greater fiscal and monetary union within the single currency zone, which suggests creeping federalisation.

Not every nation will accept such a move. I doubt we would have.

The Westminster debacle At home, the absence of a serious opposition to the Conservative government is more a problem than a facilitator in the difficult decisions that will need to be taken. UKIP to the right, Labour to the left – neither look able to challenge decisions taken.

Indeed, it has been suggested that the only real opponent of the government at present is the market. Some decisions should be easy to take. We already know from Chancellor Philip Hammond that infrastructure spending is likely to be upped, but we are short on detail and some of the anticipation is already priced in.

So the portfolio planner is faced with a difficult task over coming months and arguably even years.

Perhaps the UK will be stronger outside Europe, but it will be some time before we know. And maybe Europe will break apart, but that is far from certain. A few calls seem safe. Gilts have already taken a tumble because inflation, imposed through the higher cost of imported goods, is likely to rise. Equities, given their international exposure, might sustain recent upward momentum, but uncertainty will rule for some time, which means greater volatility. Clients with a nervous disposition could opt for cash.

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BETTE R BUSI N ESS November 2016

Better Business - Are You Fake Busy?

Are you really as busy as you claim to be? It’s time that many of us faced up to reality, argues Brett Davidson of FP Advance. He reminds us that by prioritising and focusing our activities better, we can create the life that we went into business for. And that includes saying “no” more often!

Are you really as busy as you claim to be? When people ask you “How’s business?” how do you respond?

When I ask this question of advisers who I meet I’m often told, “It’s crazy busy!”

Busy is cool. Busy is socially acceptable. Busy suggests ambition, courage, and striving.

Nothing says ‘I’m giving it some’ like busy.

So, I’m going to ask you straight out: are you genuinely busy or are you ‘fake busy’?

The subject of fake busy came from a chat I had last year with an adviser who was working through the process of letting some clients go. This adviser had started saying ‘no’ to any new enquiries that didn’t meet his new minimum criteria.

He told me: “I’ve just turned away a client that, up until yesterday, I would have taken. I know they would have generated £1,000 of income, but I said no.”

We then discussed how he felt about his decision to decline the job. ‘Uncomfortable’ is the best

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descriptor. It would have been more comfortable for him to jump back into old habits and say ‘yes’, but he knew that wasn’t going to get him and his business where he wanted to go.

So, he felt uncomfortable doing less work that week, but at least he was uncomfortable for the right reasons.

What’s the real issue here?

Because the adviser turned down the job, he was free to contemplate: “How do I attract more of the right types of clients that meet my new minimum criteria?”

However, to do that he has to sit there with no work on and spend some time getting to the heart of the issue (feeling uncomfortable the whole time). I’m sure you’ll agree that that’s a much more productive and courageous way to spend the week, rather than just doing more of the same old stuff for not enough reward. Or, as I call it, being fake busy.

Doing the old stuff was just going to see him repeat his results for the year. Doing the same thing and expecting a different

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BETTE R BUSI N ESS November 2016

result is often described as insanity. But how often do we do this in our lives?

How many of the jobs that you work on each week would fall into the fake busy category?

Think about this for a second: If you could only work 50% of the hours you currently work (say, due to a serious illness), how much of your current revenue do you think you could generate?

I’m guessing the answer is not 50%. It’s probably more like 70% or 80% or even higher. This begs the question: “What are you working on that takes up the rest of your time?”

I’m pretty sure we’ve all got at least some of those fake busy jobs – nobody’s perfect. However, the people that get ahead in this life do less fake busy and more productive, high-priority work than those who don’t. Unless you’re really looking closely at what you do every day, it’s easy to think that busy equals progress.

It ain’t necessarily so.

Week to week it’s easy to delude ourselves that these choices don’t matter too much. Yet, added up over time, they become the difference between achieving your dreams and not achieving

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them. Sort of like compound interest, but for achievement.

1. My actual to do list

How do you overcome fake busy?

Here’s something to watch out for in managing yourself. It was something I uncovered in managing myself, and I see it with a lot of my clients.

3. My diary/ scheduler on my computer

2. My email inbox

4. My weekly meeting to do list (a few specific tasks that came out of our weekly leadership team meeting) I was really busy, not always getting everything I wanted to, done. It was so frustrating.

The first sign that you might not be managing yourself very well is that you just seem to be perpetually busy.

The problem: Multiple to do lists The first sign that you might not be managing yourself very well is that you just seem to be perpetually busy. If you are, then read on, because multiple to do lists might be a huge contributing factor.

When I was challenged by a productivity expert, the first thing we did was look at where I stored my to dos. We realised I had four places:

The crux of the problem was that with multiple to do lists, I could never actually see how much I had on. This meant I could continue to delude myself about it being possible, to do everything I wanted.

What I realised as I dug deeper on this issue was that not seeing everything I had on, meant I never had to make the tough choices. I never had to: • Prioritise one thing over another • Confront the fact that some work was more (or less important) than other work • Address the number of clients I was working with • Accept that some team members were not quite delivering and would therefore need to be replaced

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BETTE R BUSI N ESS November 2016

Is any of this true for you too?

It was a pretty big payoff for not looking too closely at how I manage myself, don’t you think?

No wonder it took a little while to get to the bottom of the issue.

Who wants to have to face up to that stuff? But we must if we want to move forward effectively.

The solution: Simplify The solution was really simple (if not so easy): Have one to do list and run a zero inbox policy with my emails.

We realised (on analysis) that an inbox full of emails was where a lot of the extra jobs lurked. I addressed some emails every day (the urgent or the quick and easy ones). However, over time other emails stayed there that required more time or attention. I would have to deal with them every so often, but this was how the work built up.

Now, my VA (Virtual Assistant) handles most of my emails and I speak to her every couple of days. That might see some emails eventually coming to me as I need to do them myself.

However, many others she has already replied to, or I can instruct her on how to reply (verbally, which is really quick).

We realised (on analysis) that an inbox full of emails was where a lot of the extra jobs lurked

Every single day (first thing in the morning) I clear my inbox of any remaining emails as I plan my day. That might mean replying immediately to the quick and easy stuff. However, anything that is a genuine to do,

goes into my task management system (we use wrike.com).

It’s the same with my diary/ scheduler online. I don’t put jobs in there. They sit on my to do list in Wrike and only go into the diary when I plan my day each morning.

I’m also realistic with the time it might take me to do a job on a given day, which forces me to choose and prioritise. There are limits on how much I can get done each day.

This lack of available time has helped me delegate. My VA Emma, gets a lot more work these days as I’ve learned she can do a lot of the stuff I used to think only I could do.

Getting rid of the fake busy is one of the keys to really creating the life that you went into business for.

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: http://www.linkedin.com/in/davidsonbrett Website: www.fpadvance.com

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ADVISE R SPOTLIGHT November 2016

Adviser Spotlight – Anna Sofat, Addidi Wealth In this regular feature, I FA Magazine talks to leading advisers about what is working well in their business. This month, Sue Whitbread talks to Anna Sofat, Managing Director of London-based Addidi Wealth, a finance boutique for women, their partners and families. Anna set out in 2008 to establish Addidi as a business which was “beautifully different” and in this interview we explore just what that means in practice

Addidi is certainly an unusual name for a financial planning firm – and it’s a rather unusual business model too! Can you give us an overview of your business to start us off – and also explain where did that name come from?

Addidi is a finance boutique for women, and we have a simple mission is to help women to leverage their wealth to transform their lives into something pleasurable, rewarding and inspiring.

The name came about after much experimentation and search; we had chosen a name which ticked a lot of the boxes (availability of domain names, not already in use etc), but when we tested it the audience, they didn’t get it at all! So we started the search again and in desperation, we spend a long weekend going through dictionaries (English and Latin) over a bottle of wine! We came upon Addidi in the Latin dictionary – literally it means “to add” but in a wider context it means inspiration/add value whilst the word Didi means an elder sister so all round it fitted in what we were looking to do!

Why did you decide to specialise in providing advice services for women? Are their needs really that different?

I decided to specialise in advising women for one key reason. Although, I had previously worked in a business which helped women become financially independent, I didn’t feel there was a need for such a business as most women were already financially independent or well on their way. What I was noticing, however, was that the increased wealth

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and success being generated by women was not leading to any happier or balanced life. Women were juggling more than ever and had much less time for themselves.

So I decided to create a business that they could totally trust to look after their money and could delegate to with peace of mind. I was hoping, am hoping, that this will enable them to have a bit more of “me” time and perhaps a bit more balance in their lives. If we succeed, then we would have helped many families to become a happier family unit with the woman at its heart.

I decided to create a business that they could totally trust to look after their money and could delegate to with peace of mind Are women's needs different? I think women do have some different needs from men and they definitely think about money differently! Women have career breaks to have a family, they live longer and often they are also a carer for their parents, and they don’t have a “wife” at home who can take care of a big part of their life enabling them to focus on work! So we have, for example, devised a financial concierge service which enables our clients to delegate much of the day to day minutiae of managing their finances.

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ADVISE R SPOTLIGHT November 2016

What are the principles on which you run the business and what are the key drivers of its success?

I set up Addidi with one simple aim – to run a business which sat easily with my own conscience and values. I wanted to sleep easy at night and I wanted my clients to sleep easy too! In doing so, I also wanted to add value in my clients’ lives – by doing so, I knew I enriched my own life. With this in mind, we have a number of values/principles which sit at heart of Addidi including: • Mutuality and balance in relationship – if you don’t have mutual respect and give and take, a relationship won’t work.

• Inclusiveness – we have some very well off clients and some not so rich, old and young. The diversity adds richness into the fabric of Addidi.

• Inspiration – we are driven to be the best we can be and we want our clients to be the best at whatever they decide to do.

• Independence – for us this is not just a regulatory statement but a state of mind. We don’t get close to anyone in our industry – you can be influenced in all sorts of ways, some conscious and some not so consciously, so we don’t put ourselves in a situation which might influence subtly. So we don’t for e.g. part take in hospitality which is so common in our industry!

• Nurturing – I think nurturing is part of the female DNA and as a female focused business, it natural for us to care about our clients, our staff and the wider community. In the early days, this was done without thinking, nowadays we are a bit more conscious about it.

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ADVISE R SPOTLIGHT November 2016

As for our key drivers of success – I believe it’s: 1. The focus on being the best and not taking short cuts - I have burnt the midnight candle many, many times when I have a client meeting and I needed to finish client work. I didn’t settle for less and I don’t do it now.

2. Ensuring that we are on our clients’ side at all times so they can trust us totally.

3. Never forgetting that it’s our clients’ money and we ensure they understand what’s happening with it, what the key risks are and they are comfortable with it. We also ensure that the money is used to add value in their lives – they can’t take it with them so it’s important that they get to do things which are meaningful for them!

When it comes to the delivery of your financial planning service, how do you manage the main business processes within it? I’m thinking of key areas like cash flow planning, the use of paraplanners, review service etc.

As a business we have always been very focused on processes and systems from the beginning with written processes for the back office. I have also been wanting to write down all our advice processes – not so much, this is what we do but this is what we do and why we do it – a decision making process. This is a big project for the coming months.

Over the years, I have also learnt that whilst it’s nice to have written manuals, getting everyone to read and follow the processes is another thing entirely. So now, we are much more focused on the outcomes and standards/quality of work than the how and what.

System wise, we use Voyant for cashflow (but we also have our own spreadsheets), Curo for our back office/CRM, Morningstar for Research, FastTrack for review reporting to name but a few.

Could you talk us through your investment management process? Do you manage client portfolios in-house or do you outsource? Also what’s your stance on the active v passive debate?

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We mostly manage clients’ portfolios in-house although we do have some funds with discretionary managers where they meet a client need. Our in-house proposition has been developed with an external research company – their job to provide in-depth research and “kick the tyre” on any new brilliant ideas we might have and provide governance in our investment thinking and processes.

Our proposition is risk focused, driven by empirical evidence. We believe it is elegantly simple, yet highly effective. We cannot control the returns that the markets deliver, but we can select and manage closely the risks that our clients take in their portfolios. We can help them to obtain the bulk of the returns delivered by the markets, by minimising both financial and emotional costs, and helping them to stay the course. Belief, patience and discipline are the key to a successful investment experience.

We have a clearly defined proposition and a clearly defined target market – all businesses need to start with this You’re extremely proactive in marketing the business, but what do you find are the most successful ways you reach your target audience? Is your target client clearly defined or are you more flexible in the types of clients you take on?

We have a clearly defined proposition and clearly defined target market – all businesses need to start with this; if there is confusion as to what you provide and who you provide it to, then your marketing effort is likely to be more scatter gun than finetuned. It’s an evolving process where we fine tune, then do more fine tuning! We are just going through a brand refresh whereby we are revisiting what we do, how we do it and who we are good at looking after. This will then translate into all our messaging including written and visual.

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ADVISE R SPOTLIGHT November 2016

Most of our marketing effort is focused round events and PR as well as added value propositions like Addidi Angels and Addidi Enterprise.

What are the areas that work particularly well within the business? Could also share with us some of the key challenges you might be facing at the moment?

Our ongoing review service – we have undertaken at least annual reviews with all our clients from the beginning so this is a well-trodden path for us.

There is room for efficiency as we do a fully holistic review, not just an investment review or a valuation with a nice chat so there is quite a bit of work involved. However, this has enabled us to build deep relationship with our clients and has worked well to build trust and loyalty among our client bank.

Recruitment – recruiting high quality staff especially technical/paraplanners has been difficult as there is a shortage of high quality people. As we grow, this will no doubt become even more challenging!

What is your vision for the future of the business?

Its simple really – I want a brand that stands out for its high quality advice and client centric proposition.

I also want a business which is totally independent of me so I fall under a bus, there is a little nod and the business carries on! Within this I want a business model which is long term and sustainable with the business owned by its shareholders, staff, client and community – John Lewis of financial services perhaps.

How do you manage to keep getting good ideas to develop the business, as well as keeping up to date with all the technical needs of being a financial planner?

Getting good ideas for business development has not been an issue – I somehow manage to see an opportunity in lots of different conversations. The challenge for me has been to stay focused on the core business and taking forward only those initiatives that will add value. I have learnt, hopefully, by experience to focus on the core before the "nice to have" – I am a lot more focused than I was in the early days.

The challenge for me has been to stay focused on the core business and taking forward only those initiatives that will add value

Staying on top technically is an impossible job – I will never be an expert in all areas of personal finance but I like to have a good grounding in understanding a wide range of issues and knowing what I don’t know. As such, I read a lot and skim through relevant content on email feeds, Twitter and Linkedin etc.

Addidi aside, how do you spend your spare time?

I am pretty focused on the business at present and have been for a few years but the work/life balance is getting better. My plan is to continue on that journey till I can work 3-4 days or take a few months out.

Outside work, I like travelling, reading and learning.

Anna Sofat – Biography Anna Sofat is founder and Managing Director of Addidi, a finance boutique for women. Addidi Wealth helps enterprising women plan and manage their wealth whilst Addidi Enterprise provides a collaborative club for angel investing and non-executive engagement with SMEs. Prior to founding Addidi, Anna was the Managing Director at Fiona Price & Partners, the first business set up specifically to provide financial advice for women by women.

She holds both the Chartered Financial Planning and Certified Financial Planner qualifications.

As well as advising private clients, Anna is a regular contributor to national press and TV. Anna was awarded the Unbiased.co.uk’s Financial Adviser of the year award and nominated the Top female Adviser by FT’s Financial Adviser in 2015. Addidi has been featured as one of the Top 100 Advisory firms by the New Model Adviser magazine in 2012, 2013, 2014 and 2015.

Away from work, she is married and a mother of two girls. Her interests are her family, travel and current affairs.

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AUTO-E N ROLM E NT November 2016

Auto-enrolment and the changing way we work The auto-enrolment timeline is now halfway through staging – as the PPI’s FutureBook2 tells us. While coverage from workplace pensions is spreading, it is also thinning, and average contributions are lower than ever before, warns Henry Tapper, Founder of Pension PlayPen and Director of First Actuarial

With things changing so fast in UK business today, there are two worries; • That people will get used to the new normal of 1% employee contributions as “their pension” • That when the government turns the heat up on contributions, we will see optout rates leap-frog The heat is on The frog reference is apt here, as the nudge theory behind autoenrolment is used in cooking for boiling a live frog. Apparently, a frog in tepid water will fall asleep and not wake up if the heat of the water gently increases. However, frogs will resist being thrown into boiling water by jumping out of the pan. People contributing to pensions are thought to be like frogs – they need to have the heat turned up gradually.

At the moment we are all drawing breath, hoping that opt-out rates won’t exceed the 17% reported by the DWP for

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employers with less than 30 staff.

We are also hoping that, with the help of accountants’ payroll bureaux and the odd IFA, small employers will follow the Pension Regulator’s Duty Checker and stay on the right side of the law.

The Wild West Workplace at Hermes makes Sports Direct look like a management consultancy

While we are drawing breath, we are already thinking about 2018 and 2019 when contributions made by those auto-enrolled will jump to 2 and then 4% of band earnings.

There is a lot of concern that the people who took the decisions on the auto-enrolment timeline – Steve Webb, Iain Duncan Smith - and ultimately Osborne

and Cameron - are no-longer in office. To Hammond and May, auto-enrolment is someone else’s idea. Do they want to be in office when the pot boils over and the frogs have palpitations?

Cruel to be kind The concern centres on time; pension pots grow based on the amount paid in and the timing of those payments. Delaying payments by pushing back the auto-enrolment may not give those payments sufficient time to grow to something useful.

Whilst no one wants to be cruel, we do want to be kind.

Governments are no different. At some point this, or a subsequent Government, has to be cruel to be kind. Although those people who know about pensions and care about outcomes want contributions to increase as soon as possible, there is little incentive to annoy the population “on our watch”.

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AUTO-E N ROLM E NT November 2016

Pushing back the clock So while we are drawing breath, plans are being hatched to push back the auto-enrolment contribution increases into the next decade. Not only will this mean that AE is delivered 15 years after its original announcement in 2005, it means that a generation of savers will have missed out on contributions.

What is more, there are literally millions of British workers who are missing out on any kind of pension incentive at all, never being auto-enrolled.

That’s why I’m excited that the Government is commissioning a study into UK working practises – about time too! I’m really happy that Matthew Taylor, who heads the Royal Society of the Arts (of which I’m proud to be a member), will head the study.

The study will not get much air-time because of the broo-hahhah of Brexit but I am hoping it will address the new dynamics of what is called the “gig-economy”.

The reality of the “gig” economy The way people are working is changing and the way bosses are engaging with those who do work for them is likely to change as fast.

You’d have thought that this would be an issue for the Labour party, but the unions, who should be shouting about this, are too busy defending their subs to reach out to those who have no organisation, no union and little protection.

We’re talking about people who work through UBER, the delivery riders of Deliveroo and the messengers of Hermes. I suspect it’s Hermes that has tipped May into action. In September, Frank Field sent her a report which you can find on his website http:// www.frankfield. co.uk as a pdf called “Wild West Workplace”. It details the worst

exploitative practices I’ve read about in Britain since I had to read Charles Dickens. The Wild West Workplace at Hermes makes Sports Direct look like a management consultancy.

In the absence of the traditional workers’ representatives, it is left to Field and May to take action.

I bumped into Frank Field a couple of weeks ago as he was crossing Whitehall (I was coming out of the Red Lion). I wanted to talk with him about something else but he couldn’t help himself, telling me how pleased and

I’m excited that the Government is commissioning a study into UK working practises – about time too!

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AUTO-E N ROLM E NT November 2016

We are not alone.

There is an army of small businesses where no-one is getting paid in a conventional way proud he was that he could get a sympathetic ear from the Prime Minister.

If we are to take May seriously when she claims to be on the side of those “just getting by”, I suppose the suspension of disbelief starts here.

The man in the mirror I am an employer, though I have a most odd group of workers!

For the past four years I have paid some contractors in India without whom PensionPlayPen. com would be nothing. I do not pay them directly, I pay them through a number of intermediaries. I fear that what I pay for their services is nothing like what they get but nobody wants to talk. This worries me.

I pay my head of digital, but I pay his company which employs him and him alone. I’m not happy about this either, I want

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to move him onto my payroll and we will do as soon as his company year ends. Andy moved out to Manhattan recently and works for us from the Big Apple.

It is tricky in terms of time differences and I miss having a beer with him but heh!

Finally, I pay my web-chatters.

These guys compete for work from Pension PlayPen on their phones and get paid by the chat.

I have no idea whether this is ethical or not but students love it as they can earn while they learn.

I love it as I get great customer feedback scores. But this really is zero hours stuff and as with my friends in Mumbai.

The rest of the people who work for the Pension Playpen don’t draw a wage. Some,like our financial controller, submit invoices when they need to and some just keep the show on the road. Their reward being in whatever price our shares are worth.

We are not alone. There is an army of small businesses where no-one is getting paid in a conventional way, where concepts like the minimum wage are abstract notions and where trust is paramount. If we want things like the knowledge economy, we have to let people

work together like this – this is how capitalism does things.

While this may be of little consequence to the politicians past, it will be of considerable concern to the Treasury, the Government Actuary and the DWP in the following decades.

That’s because if we cannot increase private savings rates, we will have to meet the demand for subsistence retirement incomes on a pay as you go basis.

For “generation rent”, those people who’ve entered the workforce over the past fifteen years, that means poor pensions and higher taxes and national insurance to pay for everybody else.

Which calls for an even sharper intake of breath.

Bio Henry is a commentator on pensions.

He runs Pension PlayPen which provides advisers with outsourced pension reviews for auto-enrolment; he is strategy director for First Actuarial, which focuses on small and medium sized occupational schemes. For the first 15 years of his career he was an IFA, before becoming head of sales at Eagle Star/Zurich corporate pensions.

If you haven’t come across him on social media, you don’t use social media.

Twitter - @Henryhtapper

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ON LI N E ADVICE November 2016

The economics of online advice How do we help more people to enjoy the benefits of sound financial advice? As the debate around the scalability of advice continues, Mark Polson, Principal at the lang cat, suggests that deep pockets are needed as he considers what will make this business model work profitably in future.

Readers of this fine publication will be all too familiar with the economics of providing financial advice. People, offices, PI insurance, regulatory capital – it all mounts up and sometimes it can be hard to see where substantial profits will come from. And of course without substantial profits there is less chance of a substantial exit for the practice owners.

Small wonder, then, that a number of adviser firms have been gazing covetously over at the fintech space, and at robo-advice in particular. This promises a low-cost, easy-to-run model, which can make advice economic for those who may have been priced out with the removal of commission (though I’ve never been convinced by that argument, but that’s for another day). It’s sort of all gravy, especially if you can find a provider who’ll just let you use their system.

The big question, though, is just how economic robo-advice is.

It’s hard to tell – most fintech businesses are pretty reticent about publishing results, which isn’t a surprise. Nearly all tech companies have what we call a ‘deep J’ curve – that is to say they spend freely in the early years when building, and then recoup over the years. That

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recouping is what leads to some of the yeasty valuations we hear bandied around for a number of businesses, including in the fintech space.

The key issue behind all this is this – how do you acquire customers?

Spicing things up Happily, though, we have one business which has been around a while and which does publish its results. Not all of them, but enough for us to start inferring some things about how online advice propositions work. That business is Nutmeg, and is probably the bellwether of online investment/robo-advice in the UK at the moment.

We like Nutmeg at the lang cat, although its pricing is a

bit toppy at the bottom end.

It’s been around since 2011, its proposition looks gorgeous, it has a nice pension wrapper through Embark, and is generally solid on all fronts. Its adverts are everywhere and it’s the logo you always see on any Powerpoint slides about fintech.

So it should be working well, right? Let’s find out. Here’s how it looks (see table below).

Wow. Let’s think about that for a moment. Nutmeg’s running costs are nearly £11m a year, its revenue in 2015 was £1.7m and it has £9m in the bank.

Nutmeg has exactly enough money if it keeps revenue the same to last all of 2016 without requiring reinvestment. If it trebles revenue (which it might well) and keeps the cost base steady then it can last sometime into 2017 before running out of money.

TURNOVER

£1.7m

OPERATING EXPENSES

£10.8m

FY 2015 PROFIT (LOSS)v

(8.9m)

CASH RESERVES

£9m

PROFIT & LOSS ACCOUNT

(£20m)

HEADCOUNT

58

WAGE BILL

£4.4m

AUA

Not disclosed

CUSTOMER NUMBERS

Not disclosed

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ON LI N E ADVICE November 2016

So either Nutmeg stops doing what it’s doing in a little while, or it raises more money.

Building the business The key issue behind all this is this – how do you acquire customers? Most advisers do this through referrals, word of mouth or professional connections. All of those are free or close to free. When you get a client, you already know that that client will be remunerative and profitable – otherwise you wouldn’t take them on.

When you’re running an online investment service, you don’t have that luxury. You have to fill up your bucket with people

you don’t know, and who don’t know each other. And each one of those – in robo-advice at least – doesn’t have much to offer in the way of fees, or they’d be a standard adviser client.

So you have to go out and get these people, and that normally involves spending money.

Nutmeg doesn’t disclose its marketing spend, but we reckon it’s in the region of £4m a year.

All those Tube ads and big billboards in Victoria station don’t come cheap.

The economics of providing robo-advice are compelling. The economics of finding clients are terrifying. Any firm whose strategy in this space is about

marketing its way to success is going to find life hard, and had better have access to capital.

The key to making it work is having a customer base already.

That’s what you’ll see fire up the numbers when the big brands come in. Watch the banks, watch the asset managers, watch the insurers.

The question for you, if you’re thinking about providing this kind of proposition, is not if you can build something great. It’s whether you can find clients at an economic rate. The signs – if we use Nutmeg as our model – are that it’s going to be tough.

Follow Mark on Twitter: @theactualpolson

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CISI M E RGE R November 2016

Standing Tall Together That’s the strapline used following last year’s merger between the Chartered Institute for Securities & Investments (CISI) and the Institute of Financial Planning (I FP). The merger has brought big changes to the financial planning profession — but, with the first year under its belt, how are members finding life within this larger organisation?

IFA Magazine has been talking to some of those people involved with integrating financial planning into the CISI since the merger took effect in November 2015. We’ve also asked some CISI members for their opinions on what’s been happening over this the first year as a much larger organisation, and also what are their hopes for the future as the CISI builds its place within the financial planning profession.

Jacqueline Lockie, Deputy Head of Financial Planning, CISI help us with this important strategy. The former IFP board has become the Forum Committee and continues to influence the direction of travel.

All former IFP members automatically joined the Forum and they voted to elect seven new committee members recently, with Ian Howe as committee chairman.

“The CISI Paraplanner Interest Group is there to support and develop the role of paraplanning in the UK, and feeds its ideas and actions to the Professional Forum. Two paraplanners have also been elected to the Forum committee so there is a good, clear structure and cross fertilisation of ideas.

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“It has been a very active year since the merger”, says Lockie. “Prior to the arrival of Campbell Edgar as Head of Financial Planning at the CISI and myself as Deputy Head back in May, the CISI was busy on reconciliation work, integrating individuals’ core membership data, qualifications history, past membership details and firm information. There have been a number of individual members who have gladly supported us from the start but we have been encouraging our broader membership to engage with the CISI to move financial planning forward.

Reaching out to consumers “Our Financial Planning Week campaign in June this year was a highlight for me, with 48 firms signing up to offer free financial planning surgeries and advice sessions for consumers in person, via Skype or over the phone. The office received 600 phone calls over the week and the number of consumers using the Find a Planner tool on our Wayfinder website was up by 200% compared to previous years. Going forward, we will be joining with the FPSB in their social media campaign #Lifesbetter and #CFPexcellence.

A new internal structure “We are committed to success and intend to grow the number of financial planners and paraplanners in the UK. We have formed the Paraplanner Interest Group and the IFP Professional Forum which are made up of committed individuals engaged to

Financial planning qualifications “When it comes to qualifications, there are also plans to improve the robustness of the financial planning case study assessment as part of our diploma. As an immediate first step, we have created a complete pathway of examinations for those wishing to

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CISI M E RGE R November 2016

become fully qualified planners. This pathway can be joined at various stages by partially or fully qualified individuals who aspire to become CFP professionals. Since my call to members to get involved, we have been inundated with kind offers of help and support. So we will be liaising with the Professional Forum Committee on our plans to coordinate how to make best use of these offers.

“The future looks bright. We have twice the flow of candidates applying for and taking the CFPTM certification compared to a year ago, and very positive feedback from the recent Financial Planning Conference. The launch of our new level 4 Financial Planning & Advice module will enable a newcomer to the profession to follow a direct pathway to the CFPTM certification within just three years.”

Marlene Outrim, Managing Director or Uniq Family Wealth but we have yet to see how they will deal with it going forward.

“There was a mixed response from the membership as news about the merger emerged last year.

Many were worried that we would lose the special camaraderie special to IFP, and the focus on Financial Planning. So, we asked Outrim, a year on, how has the merger fared generally and for accredited firms in particular?

“As a member of the accredited firms’ committee, I was still involved following the merger”, she comments. “It was felt important to keep members of the accredited firms onside as they are amongst some of the most successful planners in the country.

This summer’s accredited firms’ conference was crucial in that we knew we had to make an impact.

It was a great success and did much to allay many people’s fears within the firms themselves, but sadly the committee has now been disbanded. CISI claims that this part of what was the IFP is important,

Many were worried that we would lose the special camaraderie special to IFP, and the focus on Financial Planning

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Teething problems “Communication, lack of it, or poorly considered, seems to have been an underlying theme. Initially, members weren’t properly notified about branch meetings, so speakers would arrive to find CISI members, but no ex-IFP ones. Some of the processes, such as accounts, have a £25 per item, late penalty charge which seems somewhat draconian.

CPD accounts were being audited, when the transfer from IFP to CISI had not been accurately completed. I could go on, but were these merely just teething problems that you would have in the initial stages of any merger and could of course, have been exacerbated by inadequate records inherited from IFP. Reaching out “I believe that CISI have the willingness to make the on-boarding of Financial Planning succeed, but not always the knowledge and expertise to make it happen. Appointing Campbell Edgar & Jackie Lockie as heads of Financial Planning was a great move, they could make the mistake of assuming two people, along with the Professional Forum, are all that is needed to keep up the momentum and make Financial Planning the golden goose.

“The IFP had its own Board and Executive, but it relied on a number of volunteers who gave their time willingly for the sake of its success. CISI should realise that it still needs these people and not fall back on its own employees to fill the gaps. It is still early days of course, but I wouldn’t want to see any progress, distilled. In fact, I would like to see the whole concept expand and grow. IFP made a big difference to my life, but it also in turn, made many positive changes for our clients. That’s why it is still worth striving for.”

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CISI M E RGE R November 2016

Phil Billingham, Director, Perceptive Financial Planning and CISI member Building stronger connections “Of much greater importance, I would argue, is the ‘foundation work’ that has been going on and that is just starting to appear above ground, as it were. I really look forward to seeing this having an increasing impact, but as an example the increased interaction with ICAEW is a welcome development.

Being very commercial, this growing relationship has the real potential to both grow the number of CFP professionals, as well as being a potential source of new clients and introductions for Financial Planning firms such as ourselves. We look forward to replicating this progress with other bodies.

“Whilst it is fair to say the first year of the merger has been one of transition, it is easy to overlook some tangible outcomes at this time”, comments Billingham. “Certainly, attaining Chartered Wealth Manager status was a welcome addition for many CFP professionals, as it’s a status that clients have identified with as relevant to the service we provide as financial planners. I was also pleased and relieved to see Campbell Edgar and Jackie Lockie join the CISI team, as well as encouraged by the quality of the recent additions to the members of the CISI IFP Forum Committee – a mixture of youth and great Financial Planning pedigree and experience.

Community first “But the IFP was always about being a community rather than a simple commercial opportunity. And, despite a slightly tentative start, it was great to feel that sense of community again at the recent CISI annual conference in October. I always enjoy – and benefit from – the flow of ideas and informal interaction at these events, and it was a relief to see that spirit alive and well this year. Long may that continue”.

“So, I’d grade this first year as a ‘B+’ (good, work in progress), but with realistic expectations of a solid ‘A’ next year.”

Ian S. Howe, Managing Director of Baigrie Davies and Chair of the CISI I FP Forum Committee have commented here. Howe says “There is generally a wide acceptance that the transition into CISI wasn’t quite as smooth as had been hoped for, with practical issues around data and mailings – all of which could have been expected. Thankfully, these practical, logistical issues have all been ironed out now. So, it’s a year on and yes, I think it was a good decision. There are good people at the CISI and culturally there is a real alignment. We all want to work with integrity, and it’s good that they are keen to put resources into building the financial planning profession.

“Like any merger, I believe that at the start there were cultural uncertainties as these two very different organisations came together - as others

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“On the positive side, as others will have echoed, the appointments of Campbell and Jackie were really good. Due to the fact that resources are greater at

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CISI than they ever were at IFP, it was great that both could be recruited and it is clear that they work well together.

“From a member perspective, branch meetings have been getting back on track, having floundered somewhat at the start. The new aim is to get three financial planning members on each branch committee to ensure that the financial planning voice is heard and embedded. Having the level 4 qualification in place has set a proper pathway to take someone through CF30 to becoming a CFP professional and is a real achievement. The annual conference went well, with high level of delegate engagement keeping the culture of sharing best practice alive. This event, just like the

Scottish and paraplanner conferences, are vital to ongoing success.

“My appointment last month as chair of the financial planning professional forum committee means I’ll be involved for the next three years. The role couldn’t be more different to that of the former IFP Board President. It is to manage and galvanise the committee into working as a strong team to advise the CISI on all things financial planning. At the conference we announced 7 new appointments to the committee, the majority being new members.

Our vision and strategy will be co-created by the committee and I’m looking forward to kick starting this at our meeting at the end of November when we will map out what we would like CISI to achieve into 2017 and beyond.”

Steve Martin, CEO of Smart Financial Planning and CISI member positive side, as always, the networking value was strong. The IFP community has always stepped up to share best practice and to “give something back” and this is always so valuable.

“The purpose of the IFP was all about increasing the profile of financial planning and about growing the profession for the benefit of consumers” says Martin. “Now, I fully appreciate that there has to be a handover period following the merger, as the new team get to grips with things. I also realise that I’ve been one of those members voicing concerns about the merger from the day it was announced.

“Because of this I really wanted to go to the first CISI annual conference in October with an open mind, to see for myself what was going on. To be honest, I’m not minded to go again. I was disappointed with the event overall, particularly in the quality of the programme, which to my mind didn’t include anything we haven’t seen before. For next year, I think it needs to be refreshed and revitalised, as to get people there you need really good content to attract them. We need to move on, to use the platform to generate new thinking and ideas. On the

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“I think that the financial planning profession needs to re-find its voice within the structure of this much larger organisation, and hopefully driven by the thrust of financial planning within it. In particular, when it comes to bringing in new financial planners, I have concerns. For me personally, titles are simply not important any more. I believe that it’s all about what we do as planners which sets us apart from other professionals. I’m looking for consistent communications about what CISI is doing. Firstly from the inside, to know how they are working on building the focus on financial planning and then externally, to capture new thinking ( and there is just so much exciting stuff going on out there) so there is a fresh approach to representing the profession and attracting the next generation of financial planners. At the conference, we were told by the CISI that membership of the financial planning forum had fallen by just under 20% since the merger. Clearly that needs to change. At branch meetings, it’s essential to get relevant subject matter on the programmes with sufficient focus on topics for financial planners. Without this I believe there is a real risk that the community might drift away, finding other communities in which to network and hear the challenging ideas that are needed to help drive business success and improve the client experience.”

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SPONSORE D FEATU RE November 2016

Investment in an uncertain world – the role of structured products With more market uncertainty around now than most of us can care to remember, Sue Whitbread talks to Colin Brockman of Investec Structured Products to discuss the role of structured products as part of the core element of a client’s portfolio.

Q. Investec are well known as providers of structured products. Can you talk us through your experience in the sector?

Investec started offering structured products back in 2008, so we have plenty of experience.

Back then about half the available structured products were deposit type plans and the other half were capital at risk plans.

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We’ve stuck with our process by offering a range of plans, which are open for subscription over six week periods. So advisers know that when one plan ends, another one starts again. Our current range of plans opens on November 7th 2016 and will run for six weeks. This gives certainty to the adviser as to what is available and when. Depending on consumer demand we will build our range of different products to suit different risk profiles, as well as the different planning needs for income or growth investing.

The market affects which products are more popular at any one time, but the fact that we have a complete suite, which is continuously available, supports the advice process. These products have been going on for a long time now and we often see rollover of capital at maturity, as once clients have had exposure to structured products as part of the foundation of their portfolio it gives them confidence that

they can maintain that exposure going forward.

Q What are the main types of structured products you provide?

We have four or five different types of plans which are broadly segregated into 14 different individual products at present.

Within those options, for example some are Investec backed, others are collateralised and others gilt backed.

The 14 plans are largely either structured deposit or structured capital at risk products. In each of those we have income or growth plans and also a hybrid. We have further segregated a couple into our retirement plan suite, which have been specifically highlighted to appeal to those clients at or near retirement.

There’s been a big impact in the retirement space as a result of pension freedoms legislation and therefore these products works well in this space.

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One product which has been aimed specifically at the retirement market is our retirement deposit plan. It provides a serious alternative to using fixed term annuities, these annuities will deliver a fixed income over a set term. If we take an example of a 60 year old male, they’d be looking at an income from a fixed term annuity of approximately 4-4.5% per annum, plus they would provide a guaranteed minimum capital return, typically around 85% of the initial investment for a six year term. If we compare that to our retirement deposit plan, firstly we can deliver a pretty comparable income yield of 3.75% per annum over the six years.

However, if the FTSE 100 index at maturity (all our plans use this index as their base) is greater than 90% of its starting level then there is a bonus. The client will receive 100% return of capital – plus they will have received the income as well. There is not the same potential for loss as there is with the annuity route. We have to look at the potential downside too, should the FTSE 100 level at maturity be lower than 90% of the starting value, then clients would get their capital back less the amount of income they received over the term. This way, they have a decent chance of getting a return of their capital which they don’t have from a fixed term annuity, plus a level of income which is comparable.

This entry level product is aimed at clients in their retirement years who are looking for income. It is interesting that whilst advisers are often worried about counterparty risk, our research shows that consumers main worries are about the risk to capital. This product is firmly designed in line with this to give them that peace of mind.

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Q So what about those who are prepared to accept additional risk for the prospect of greater returns?

In those cases you could argue that our FTSE100 Enhanced Income Plan is better on both counts, although because there is counterparty risk which can translate as effectively being greater credit risk, clients must accept a risk to capital. This is what’s called a “non-contingent

Overall we do have a very attractive range of products – almost no brainers

income plan”. It’s the only one in the market right now paying 5% income per annum, which is paid regardless of what the index is doing. The income is therefore not contingent but the capital is. The capital protection barrier is set at 50%. Clients will get a fixed and predefined income for 6 years, and return of capital as long as the index has not fallen by more than 50% at any point during the term (this switches off the protection), the index doesn’t need to get back to the starting value in order to deliver 100% return of capital. If the index does breach the 50% fall level then the capital returned will simply reflect the actual fall in the index over the term, making

it broadly the same as capital exposed in a traditional collective investment scheme.

For clients prepared to put both at risk, our FTSE100 Defined Income Plan delivers a contingent income of 6% per annum. Again the “at risk” barrier comes in at 50% of the FTSE 100 starting level. But this time if the index falls below the 75% level then the income stream is halted. That’s the risk.

However, if the index rises back above the 75% level then not only does the income stream return but all missed income payments are also paid.

Overall, we do have a very attractive range of products – almost no brainers. They can deliver a high income with a high probability of capital returns, and that’s on the income products.

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SPONSORE D FEATU RE November 2016

Q What about backtesting? We know that past performance is no guide of course, but how do the products stack up if you look at how they would have performed historically?

We backtest all our plans very thoroughly, looking at all possible 6 year periods throughout history – broadly 6,600 or so. In the case of our FTSE 100 Defined Income Plan for example, in 99% of situations the income would have been payable in full at 6%. That’s a very high probability.

Stochastically looking forward to capital return, the figures are very similar. For the capital aspect, the likelihood of capital breached by 50% again is 99%. Although based on past performance, it does indicate a high probability of capital return and the level of income achieved, particularly when compared to what’s in the market from drawdown, or annuities etc. All those products are seeing squeezes on their income and some are removing

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guarantees too, as was the case with AXA recently.

We’re seeing a reduction in the forecasts for long term asset class growth assumptions Recently the Dynamic Planner forecasts for example have come down.

Earlier this year they were

There is not the same potential for loss as there is with the annuity route

forecasting long term return from UK equities at 7.4% per annum. It’s now been cut to 6.9% per annum going forward.

This has many implications for all sorts of strategies including structured products, as it affects the cost of guarantees. We’re also seeing the risk free rate falling so there are wider implications for investors seeking a return on their capital. In the UK, it’s twice as challenging for those clients in retirement, as the impact of Brexit on sterling is already showing that inflation is likely to pick up into 2017, as the rising cost of imports takes effect. With income under pressure

especially from savings, and the cost of living rising, the disparity is even worse.

Q Is the current political/ economic/market uncertainty having an impact on demand for structured products?

We’re seeing a steady demand, that’s for sure. There’s a perception at the moment that when the stock market is high structured products are not the thing to buy, and this is a view we sometimes find with advisers as well as end-clients. This surprises me as it’s rather counterintuitive.

At our last consumer group meeting at the end of the summer, our participants told us that they were reluctant to look at defensive products at the current time with the market being so high. I would argue that at such times structured products make particularly good sense.

Q Is there one of your plans that is particularly suited to uncertain market conditions?

We have the most risk averse product in the market right now – our FTSE100 Defensive Growth Plan. With a 6 year term, as long as the FTSE 100 index is at more than half of its starting value at the end of the term, then the investor will get their capital back plus a payment of 34%. It doesn’t matter if the index drops below that during the 6 years.

For instances, taking the FTSE 100 at around 7000 today, if by

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2022 it is above 3500 then this offers an attractive proposition, particularly when we are facing so many uncertainties.

Q What about the thorny issue of credit risk? Is counterparty risk still high on advisers’ checklists these days?

Yes, counterparty risk can still be an objection for some advisers to buying a structured product. These risks have not gone away but they are much lower now than they were a few years ago. That’s particularly important for advisers and their compliance departments.

When it comes to risks, at Investec we have particular benefits. We are one of only a few banks to have credit upgrades over the last 18 months.

We are now rated A2 with Moody’s, which is principally due to the cautious manner the bank is, and always has been run.

We also have a collateralised version of some plans which moves the credit risk from Investec onto the shoulders of 5 other A rated institutions, as well as a government gilt collateralised product too. So if counterparty risk from Investec is unpalatable, you have the option of other collaterised versions. We also have structured deposits covered by the Financial Services Compensation Scheme.

Of course, the capital at risk products are not FSCS covered, and never have been. Credit risk is more important but can have

government backed cover which currently has an AA+ rating.

Interestingly, with forthcoming MIFID and PRIIPS regulation being delayed, this raised questions about what it will mean in adviser assessment of counterparty risk. For the first time this legislation will allow comparison on a level playing field of different investment products via a key investor document, and risks will be shown on the SRRI scale from 1-7. For structured products in particular, this will mean that one number will reflect both the credit risk and the market

They can deliver a high income with a high probability of capital returns, and that’s on the income products

risk of the product. This is very important. In theory, advisers could compare a single premium bond at say 4/7 with a multiasset fund also say at 4/7 and then a structured product at 4/7 too. They will see all three comparable on a risk basis. We’ve never had that before due to unquantifiable counterparty/ credit risk. We believe that this will put structured products firmly on the map, especially for advisers who are wary of the credit risk aspects.

Legislation was due out later this year but it looks like it will be delayed for 6-12 months.

However, we can still calculate our SSRI scores with our deposit and income plans coming out at 3/7 and our capital protected at 4/7. Although perhaps unnerving, this is where many clients will see themselves on a typical risk scale – somewhere in the middle.

Q What are the main types of structured product that advisers are asking you for and using at the moment?

Currently our defensive and income plans are most popular with advisers. With the strong stock market we’ve seen recently, appetite for risk increases and interest wanes a bit in getting underlying protection. In a falling market however, interest in our enhanced kick-out plan is notable. Now, our biggest selling products are the defensive kick-out products. One of these allows the market to fall by 10% and another by 20% (eventually but in steps). There is a lot of money going into these, but if the stock market were to weaken it would probably fall. With all the uncertainty that we now face, the prospect of negative interest rates in the UK, plus global uncertainty with elections coming up, I expect to see the use of structured products rise into 2017, as advisers look to build a solid base to their clients’ portfolios.

Bio Colin is Head of Intermediary Sales for Investec Structured Products, part of Investec Corporate & Institutional Banking.

He has been with Investec for 7 years and previously worked at Prudential in their investment development intermediary sales team, having also had roles in regional and national account management. Prior to this, Colin was one of the top IFAs within the South East region for a large national brokerage.

He has worked within the specialist offshore tax and investment arena for a boutique IFA firm and has even spent time as a Constable for the Essex Police.

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U K EQU ITI ES November 2016

U K Equities Where Next?

It’s been an exhilarating ride since the summer, but can it continue?

I FA Magazine has been asking the experts Yes, the strength of the UK stock market since this summer’s EU referendum has been raising eyebrows in some quarters, considering the scale of the uncertainties that abound on the world stage. But we do need to remember that UK equities remain a core component of many investment portfolios.

So, with the weakness of sterling providing a major boost to the value of shares in exporters, what are the challenges for advisers and investment managers

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as they look to maximise the opportunities and avoid key risks for 2017 and beyond?

Both sides of the situation We spoke to two leading asset managers – Standard Life Investments and Old Mutual Global Investors - to find out where they see the biggest risks and opportunities in the UK equity sector. And then we talked to two leading advisory firms to get their views on the sector – and, essentially, to find out which funds and which fund managers they are favouring at the moment, and why.

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“U K Equities – risk and opportunity” Standard Life Investments Thomas Moore, U K Equities Portfolio Manager at Standard Life Investments, says that while the FTSE 100 is breaking records, there are opportunities to be found among smaller and mid-sized U K companies for those who are willing to look for them yields have pushed investors into sectors such as consumer staples, which now trade on p/e valuations of 20x with a 2-3% dividend yield, despite having only pedestrian organic growth rates.

And yet, he says, some investors continue to believe in the ‘greater fool’ theory - relying on being able to sell their overvalued stocks at an even higher valuation in the future. Up to now, this approach has worked well, supported by QE. Could there be a trigger for this strategy to backfire?

In practice, says Moore, many of the FTSE 100’s constituents – which make much of their earnings overseas – have countered post-Brexit pessimism quite effectively on the back of strengthening commodity prices, and on the fact that sterling has hit a three-decade low.

But, we asked, is this a long-term, sustainable shift in fortunes for the dollar-earning mega-caps of the FTSE 100? There are some strong indications that sentiment toward some sectors may now be approaching extreme levels. As such, he says, his team believes that a sizeable opportunity has now appeared for those advisers and investors who are willing to stay focused on companyspecific fundamentals, including smaller and mid-sized stocks.

Opportunities Taking a blanket view on UK stocks might be tempting, says Moore, but that’s a strategy that misses out on many important opportunities. In practice, investors who are willing to scour the market will find many UK stocks that offer the prospect of sustained dividend growth thanks to a fundamentally healthy dividend cover combined with low debt levels.

For the moment, too, post-Brexit economic data remains buoyant for the UK. And so do consumer sentiment and household cashflows, which currently look set to hold up despite the weak pound. As we’ve noted in this month’s IFA Magazine news section, wage growth and lower interest payments have been combining to offset higher import prices.

And against this backdrop, domestic cyclicals and financials look ripe for a recovery.

Greater fool?

There are a few things UK equity investors must pay attention to amid the uncertain political backdrop.

First, says Moore, the gap between equity dividend yields and bond yields has widened to record levels.

This in turn reflects anxiety regarding the reliability of corporate earnings and dividends amid the postBrexit backdrop.

There’s good news and bad news in the way that many large-cap stocks on the FTSE rallied sharply after the EU referendum – largely due to increased risk aversion. However, says Moore, Standard Life believes that these companies are now significantly over-valued in relation to their weak earnings and dividend prospects. And a correction could therefore be forthcoming.

Second, he says, UK sector valuations are currently polarised and poised to snap back, because macrodriven moves in bond yields and currencies have led to some extreme disparities in sector valuations.

The gap between cyclical and defensive valuations, according to Moore, is even higher than it was during the financial crisis of 2008-09. Low bond

Further afield, Moore notes, global markets which also reacted negatively to the UK vote have now largely recovered, “with investors viewing the event as a local rather than a worldwide headwind.

Overseas equities have been further supported by an improving US economy and, in the likes of Japan, China and Europe, supportive monetary policy.”

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U K EQU ITI ES November 2016

While markets may remain volatile during forthcoming UK-EU negotiations, he adds, the UK equity market appears to be at an extreme in terms of macro-driven positioning - creating opportunities for bottom-up investors who are willing to stay focused on company-specific fundamentals.

“We continue to use our extensive research resource and Focus on Change investment process to identify companies with sustainable dividend growth, and where attractive dividend yield is backed by cashflow momentum, dividend cover and balance sheet strength. We remain confident that this approach will deliver superior growth in capital and income over the medium term."

“Best of breed” Investment Quorum Not all U K equity investments are the same, says Peter Lowman, Chief Investment Officer at boutique wealth manager Investment Quorum Fund managers with a solid investment process Nobody’s disputing that there are many risks within the current market, says Lowman. But “the sensible strategy for advisers is to avoid the daily noise and concentrate on those best-of-breed funds which tend to perform in all weather conditions- thus giving your clients meaningful, risk-adjusted returns for the long term. “

“When constructing a well balanced portfolio, deciding upon the right mix between large, mid and small caps, special situations, recovery stocks, contrarian fund managers and of course UK equity income funds, is incredibly important for advisers and investment managers, especially at the moment.”

Currently there are nearly 400 UK funds facing advisers and investors, he says, including 270 in the UK All-Companies sector, a further 80 in UK equity income funds, and 47 in UK smaller companies.

And that’s not including investment trusts and exchange traded funds.

And yet, says Lowman, a great many of these funds deliver only a “consistently average performance,” which he says leaves us with what IQ regards as the “best of breed funds”: the ones that have “experienced fund managers at the helm, [have] shown consistent performances, and can demonstrate a constructive investment process.”

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Investment Quorum’s nominations, he says, would include funds such as Lindsell Train’s UK Equity Fund, managed by the amazing Nick Train whose Buffettology approach has delivered consistent performance over many years. Another, he says, is the LionTrust Special Situations Fund, under the stewardship of Anthony Cross and Julian Fosh, whose objective is to deliver long-term capital growth through pure stock picking.

The long and the short of it Others to mention, he says, are Ardevora UK Equity Fund managed by Jeremy Lang and William Pattisson, whose approach, he says, is to recognise stocks that perhaps the market has wrongly priced.

It’s worth noting that this fund has a mandate to go long, or short when positioning the fund, which hopefully gives investor benefits from both rising and falling markets.

Then, finally, he says, there’s the Franklin Templeton UK Managers Focus Fund, whose team approach helps to construct a concentrated portfolio of their best ideas that cover large, mid, small and income stocks to deliver a combination of both growth and income. Not forgetting the estimable Evenlode Income fund, managed by the well-respected Huge Yarrow and Ben Peters.

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“Don’t forget about dividends” Whitechurch Securities Ben Willis, Head of Research at Whitechurch Securities, is keen to remind us that looking for a solid income stream is still important under current market conditions

The value of dividends “Given the strong performance of the FTSE 100 since the referendum, can it continue? Well, the recent interest rate cut only reinforces our view for seeking out dividend paying stocks. In the present uncertain climate it makes sense to hold dividend paying companies across the whole market spectru - ranging from overseas earners who are benefiting from sterling weakness to domestic, quality businesses that can grow dividends despite the economic backdrop.”

“It seems hard to believe that since the UK’s momentous decision to leave the European Union this summer, we would see UK stockmarkets currently trading near record highs. While this rally has provided some relief given the immediate concerns post-referendum, the outlook for the UK economy remains unclear. Only time will tell what ‘Brexit’ actually looks like.

“Since the vote, UK large cap global businesses have been the big winners, benefiting from sterling weakness as these companies generate overseas earnings in US dollars. In addition, the Bank of England’s recent interest rate cut and gilt purchase programme has squeezed deposit rates and bond yields further. This has only increased demand for dividend-paying UK blue chip companies.

“Currently there are lots of FTSE 100 stocks paying attractive dividends, but dividend cover remains a problem. With many large caps facing issues such as increasing pension deficits and historically low commodity prices, dividend cover is likely to remain an issue going forwards.

“Income stalwarts such as BP and Shell continue to pay attractive dividends over 5%, but dividend coverage is low, and the ability to keep paying a dividend in the future with oil prices at current levels is in question.

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Two funds that Whitechurch has successfully invested in since their initial launch are Woodford Equity Income and Miton UK Multi-Cap Income, he says. “Both funds benefit immensely from having highly experienced UK equity fund managers at the helm that have established strong, long-term track records.”

“The eponymous Woodford Equity Income is managed by the highly regarded Neil Woodford, who established his reputation at Invesco Perpetual.

Woodford’s approach is to take a contrarian, topdown view, often making large sector bets – for instance, no oil majors and no banks. He is also a keen investor in unquoted businesses and will allocate a limited amount of the fund towards this area in order to generate potential for capital growth.

The Miton fund is distinctly different, he says.

Although the fund is free to invest in large companies, its predominant focus is on smaller UK dividend-paying companies. Managed by Gervais Williams -formerly at Gartmore and Henderson, and a proven smaller company investor - Williams aims to focus on higher-quality smaller-sized companies which he believes can grow their dividends over time.

Both funds complement each other well, says Willis - seeking equity income opportunities from differing areas and industries. And by holding a blend of both funds, investors can achieve diverse exposure across the board to UK stockmarkets.

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U K EQU ITI ES November 2016

“Waiting for the fiscal stimulus” Old Mutual Global Investors A possible announcement in the forthcoming Autumn Statement [due on 23 rd November] about an increased fiscal stimulus ought to benefit the majority of the Old Mutual U K Alpha Fund’s holdings, explains Richard Buxton, head of U K equities and the fund’s manager

Britain’s network of roads, railways and a myriad of other things. This, surely, will alleviate some of the pain and economic uncertainty of a ‘hard’ Brexit?

“Of course, this change in the mood music may be played out over many years but if the baton finally passes from monetary to fiscal stimulus, it has significant implications for leadership in equity and bond markets. The aforementioned infrastructure projects will need to be financed somehow.

“Has anyone else noticed it? I am, of course, referring to the beginnings of a change in mood music for the UK equity market. We may have been here before, where time has been called on the near 30-year bull run in bond markets, resulting in yields grinding gently upwards, only to be compressed once more. But let me explain why, this time round, I believe things are different…

“I am becoming increasingly convinced that monetary policy, in all of its guises, has reached the end of its useful life. Negative interest rates may help companies to borrow cheaply, but if the money is used for share buybacks or overseas acquisitions that merely exacerbates the divisive nature of Quantitative Easing. It boosts asset prices for those who own them but the vote to leave the European Union was, in part, a warning shot across the bows of institutions from Joe Public flagging that not enough has been done to help those in the ‘real’ economy who aren’t rich in assets.”

Changing the mood music “What is to be done? The smart money is on the use of fiscal stimulus. Hopes are rising that, come the Autumn Statement, Chancellor Philip Hammond will announce major spending plans for boosting

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“The most obvious way would be a massive sale of billions of pounds worth of UK Gilts, flooding the market and, at long last, depressing bond prices and lifting yields in the process. Rising bond yields would be good news for a number of reasons, not least helping to restore much needed profitability to our unloved banking system through an improvement in banking margins.

Bond proxies – where now?

“A further consequence could be the negative impact on ‘bond proxy’ stocks, the likes of which have become way too overcrowded a trade in my view, particularly in the consumer staples sector. Investors might finally wake up to the realisation that Barclays Bank, which trades on a 50% discount to book value, isn’t that bad value compared to British American Tobacco, which sits on a 12x price/earnings multiple… for 2020.

“Given increased government borrowings, the pound will have to continue to take the strain. But that is not all bad news for the 75% or so UK-listed companies with large overseas earnings which are listed on the FTSE 100 index. Does this mean, at long last, larger companies might even unwind years of outperformance registered by their smaller and medium-sized peers?

“The market moving events which investors face in the final months of the year – the Autumn Statement, a bitterly contested US election and an Italian referendum which could see a further rise in populist parties – means investors will need to be confident of their respective fund positioning.”

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COMPELLING EVENTS TO CHALLENGE YOUR THINKING

U P CO MI NG

EVENTS Great British Investment Roadshow — London & Edinburgh

NOVEMBER

These free morning events (09:00-13:30, including lunch) will provide all the up to date information you need to enable you to make better use of EIS, VCT and BPR products. These long established investments are rapidly becoming mainstream, because of their potential to deliver strong returns as well as the outstanding tax benefits for clients which are so frequently the focus. It’s about a lot more than that however, so if you would like to bring your knowledge bang up to date with the detail of these schemes, this event will help.

15&22 2016

IFA Magazine Conference and Awards 2017 A brand new two day event purpose built to deliver exceptional content and networking for investment focused advisers. The programme will offer a variety of sessions, workshops and talks covering investment management as well as business and personal development topics. The whole event will be focused on helping you and your business to deliver excellence in client service both now and in future.

JUNE

28-29 2017

Investment Advice Forums 2017: A brave new world Midlands & South East

SEPTEMBER

These one day forums will look to the future and what’s next for the economy and UK investment advice. With the concept of sub-zero yield bonds and the threat of negative interest rates taking us into somewhat uncharted territory, these are challenging times for investment advisers. This event will consider what the future holds for traditional investment products and also the alternatives. And what are the investment strategies of tomorrow? This event will make you aware of the issues, help you to understand the risks enabling you to make informed decisions.

14&21 2017

2017 dates for your diary The dates for our 2017 core events are now confirmed see above for details. Put the dates in your diary now so you don’t miss our informative, future-focused and adviser-only 2017 events. Not only will you come away with structured CPD, accredited by CISI, you’ll stay up to date and pick up tips, tools and ideas from experts, thought leaders and peers that could be invaluable to your business success. We’ll also ensure there’s plenty of time for you to connect with attendees which can open doors and provide new insights for you and your business. We’ll let you know more details about our events soon including when you can book in.

To find out more and to register, visit the events section of our website www.ifamagazine.com

@IFAMagEvents

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GOT A QUESTION? GET IN TOUCH WITH ONE OF OUR TEAM

Kath Morgans Head of Events, IFA Magazine kath.morgans@ifamagazine.com

Will Fearnley-Whittingstall Group Commercial Director, IFA Magazine will@cliftonmedialab.com

RICHARD HARVEY November 2016

Safety first?

All that glitters is definitely not gold when it comes to investment, but how often is peace of mind overlooked, asks Richard Harvey?

A few months back, a new movie came out called "The Shallows", which features a terrified swimmer stranded on a sandbank being eyed hungrily by a circling shark. And the tide's coming in...

Ever since UK interest rates have declined from 'interesting' to 'you're-having-a-laugh', investors have been rummaging around the internet for schemes which promise a livelier return.

The trouble is that many of these schemes are promoted by the financial world's equivalent of the Great White.

While the voice of reason whispers in their ear, "if it looks too good to be true, it almost certainly is", domestic pressures may demand that investors at least put some of their money into plans promising to outperform the market.

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Going for broke In the case of Channel Islandsbased Providence Global, it was a juicy 7.5% if you bought a bond linked to the company's worldwide financial activities.

An earlier bond, offering 8.25%, apparently hoovered up ÂŁ5m from 500 investors.

The vast majority of savers and investors can be put firmly into the "unsophisticated" box when it comes to understanding even the basics of investment In September, it was announced that Providence Global had gone into liquidation. It is not yet known how many investors have seen their savings wiped out, because the scheme was not

covered by the Financial Services Compensation Scheme.

Whilst it is earnestly to be hoped that no IFA put client money into Providence Global, we must give the FSCS their due, they have long warned that they will not stump up if one of these get-rich-quicker wheezes goes down the tubes.

I have a chum whose IFA put about a third of his pension pot into four unregulated collective investment schemes, admittedly before the FSCS announced its clampdown.

He's still waiting to see if any of them will deliver any kind of return at all, and has been warned that one of them - in which ÂŁ10,000 of his savings was invested - has about as much chance of making money as Sir Philip Green has of being named Philanthropist of the Year. Not least because Grant Thornton are now involved trying to establish if there's anything in the till,

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RICHARD HARVEY November 2016

the personal finance editor of The Times, suggests that maybe the FSCS should be given a larger promotional budget to shout out: "If it looks to good to be true, then it probably is".

But that would generate plenty of discussion about where that extra budget would come from.

apart from a dead moth and a rather large IOU. Most clients are pragmatic however, and understand that IFAs in their quest for betterthan-market returns within clients’ portfolios may look to be bold and creative.

Risk Management Certainly, my current IFA has been absolutely explicit in what I can expect, on the basis of my attitude to risk. This was revealed in the laborious form which I completed, explaining my current circumstances, almost down to my inside leg measurement and what I like on my toast in the mornings. But I’m sure that readers will know all too well about these tolerance to risk assessments for sure.

If it’s too good to be true, it probably is Highlighting the Providence Global debacle, Anne Ashworth,

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And it's also incumbent on IFAs to deliver the same message to their clients, accepting that many (most?) already do.

While the voice of reason whispers in their ear: "If it looks too good to be true, it almost certainly is"

The vast majority of savers and investors can be put firmly into the "unsophisticated" box when it comes to understanding even the basics of investment. But, equally, most of them also don't expect their IFAs to perform miracles.

Simply keeping their savings safe, ensuring they can sleep at night and achieve their goals in life will do nicely.

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E D'S SOAPBOX November 2016

That’s the Way to Do It! It’s not economics that’s driving the US election campaign, says Michael Wilson, it’s knockabout farce and anarchy. But that doesn’t mean that we shouldn’t be looking for clues about future policy.

Would you be very surprised to hear that there’s really quite a lot of confusion about where Donald Trump and Hillary Rodham Clinton stand on the matter of economics? And that, amid all the blustering, name-calling and downright threatening behaviour that has characterised this most degraded of presidential elections, the subject of economic policy has hardly surfaced at all.

And that’s a problem for a bemused and worried world as it waits for the result of the 8th November poll.

Denial of service attack It’s not that Hillary Clinton doesn’t have an economic policy – broadly, ‘more of the same’ with perhaps a little more wealth redistribution thrown in – and nor is it that Donald J Trump plainly doesn’t. It’s that Trump has brilliantly shifted the focus the debate away from substantive issues like economics and international relations, to the extent where Mrs Clinton literally hasn’t managed to find the platform time to expound it.

It’s a technique that Russian hackers might have been proud of. If you batter your target with enough random garbage – and Trump’s unending tide of bizarre

44

falsehoods and abuse can hardly be described in any other way – then you can shut them up for long enough to wound them.

Sound familiar?

the overall cost of labour for employers. It’s easier than you think. Well, the first part is, anyway. All you have to do is cut

Trump and Judy We’ve been hearing quite a lot about so-called disruptive models in the last couple of years.

Companies like Uber or AirBnB or challenger banks are shaking up the stuffy old mould and making us all think again about the businesses we thought we knew. Well, you’re going to hate this analogy, but Donald Trump is the very epitome of the disruptive economic model.

Cast aside your preconceptions about how fuddyduddy old federal budgets should be made to balance, and give a warm welcome to the concept that foreign debts can be run up and then quantitatively eased away, or simply written off if that’s too difficult.

Open your mind to the idea that you can pay America’s workers more while still reducing

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E D'S SOAPBOX November 2016

corporation taxes, personal taxes and (critically) inheritance taxes, and you’ll really believe a man can fly. Why, you can pay for the fiscal gap by levying a 35% tax on Mexican imports, and a 45% duty on Chinese goods.

Better still, deport all the pesky Latinos who are either sponging off the US state or else working for far too little money, so that …. no hang on, that won’t bring down employment costs at all. Ermmm, but it might create new job openings for the downtrodden white blue collar class, who surely can’t wait to get back to the romantic grime of Detroit’s derelict car factories or the pure air of the midwest’s coal mines. That’s how you make America great again. Apparently.

Donald Trump is the 21st century’s answer to Mr Punch.

He bullies, he threatens, he shouts

Trump’s economic illiteracy is beyond simply staggering. But that’s not the point, because The Donald is not running on policy at all. He’s running on blind, lashing-out anger. And that’s the way his supporters like it.

Donald Trump is the 21st century’s answer to Mr Punch.

He bullies, he threatens, he shouts, he degrades women, and he’s ready with the gallows (and worse) for anyone he can’t get on with. He’ll have to purge the judiciary before the hangings can start, of course, but that’s not going to be too difficult. He’s a delight for anyone who can’t tell real life from reality TV, but who likes a bit of violence.

Just don’t ask him where his sausages have been.

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And Hillary? The most unpopular Democrat presidential candidate in living memory, with well over 60% of the electorate expressing their mistrust of her – compared with 70% for Trump. She may have vastly more political experience than Trump on both a national and an international level (Trump has none at all, of course) - and for my money she beats him on both intelligence and debating skills – but she will be forever dogged by the revelation that she maintained sneaky secret email identities in connection with her confidential work as Secretary of State. And that makes her a liability of a different, political kind.

But then, this is no ordinary election, and it’s being fought on Trump’s chosen territory and not Hillary’s. The outside world (i.e. us) will have to wait to see exactly what she makes of her mandate, if she can secure it.

Debt, and its many uses Could Trump get away with his twin goals of boosting the federal debt pile and making the dollar strong enough to demonstrate America’s might to the world?

Well yes, say some theorists, he could. It worked for the US government after the Vietnam war, when a vast quantity of debt was turned into paper that the world promptly fell over itself to buy – thus driving up demand for the dollar in its post-gold-standard guise (1971) and cementing its authority as the world’s favoured currency of last resort.

It worked for Ronald Reagan, another unlikely Keynesian, who issued colossal volumes of debt

in the early 1980s as he battled to keep America’s smokestack industries running in the face of a recession and a sharply improving Japanese trade attack. Reagan opted for debt rather than higher taxes, which looked like a huge gamble at the time, but it paid off handsomely.

He did, however, have the good sense, once the economy was back on course, to raise taxes and restore the balance. Something that few of his successors have ever had the courage to do.

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E D'S SOAPBOX November 2016

China, Mexico and those damned Europeans We may as well start by restating the obvious. Donald Trump has ditched the Republican Party’s decades-long commitment to international free trade, in favour of punitive import tariffs against those states which he thinks are manipulating their export economies to the detriment of small-town, blue-collar America. In China’s case, it’s also a visceral reaction to his claim that China has cheated its way toward owning a huge chunk of America’s bond debt. Something that he believes should never have happened, although it’s not clear how anybody could have stopped it in a free market.

We already know what Trump thinks of Mexico’s export surplus, but a bigger surprise for Europeans is his hostility to Canadians. Trump is spitting nails about Mrs. Clinton’s adherence to the 1994 Nafta deal with Mexico and Canada that her husband Bill originally signed and he has also challenged her to deny that she supports the Trans-Pacific Partnership. She’s already declared her opposition to TPP, but it’s on the record that she once called it “the Gold

46

Standard” of trade deals, and he suspects that she’ll lose no time in implementing it if she wins the presidency.

Awkwardly, America’s senior business community broadly supports TTP, which seems to put both candidates adrift of the industrial consensus. It remains to be seen how that one works out on the ground.

Hillary can’t afford to be publicly seen as approving too much of those pinko commies in Germany As for Europe – which has image problems of its own, remember – the divide is more pronounced.

Hillary can’t afford to be publicly seen as approving too much of those pinko commies in Germany (editor - shurely shome mishtake?) Or not, at least, as long as the battle for blue-collar votes is on. Privately, Europeans are quietly confident of a benign attitude from a Clinton

administration. But shhh, keep it to yourselves.

Taxes It’s rather hard to pin Mr Trump down to any serious policies on tax, except that he wants to cut taxes generally. His September 2016 programme envisages a continuation of the 2015 schedule that would implement a 15% business tax, a 33% personal tax ceiling (compared with the current 39.6%), and also - for the first time - the complete repeal of inheritance taxes. A move which, as his adversaries comment, would benefit the billionaires rather more than the blue-collar masses who have no savings.

Could that be afforded? Well, the Wall Street Journal calculated last autumn that Trump’s earlier plans would have broadly tripled the effect of the GW Bush tax cuts of 2001 and 2003. Trump’s new plan, the WSJ says, would reduce revenue by an extra $4.4 to $5.9 trillion over a decade, although there might be some extra revenue from economic growth.

Mrs Clinton, on the other hand, is concentrating her efforts on higher earners, bringing in a minimum 30% income tax for households with more than $2

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E D'S SOAPBOX November 2016

million a year. She has pledged to use "business tax reform" to pay for around $275 billion of muchneeded infrastructure spending (on top of a $305 billion five-year programme agreed last year), but she’s strangely silent on the detail. Trump, by comparison, is promising $1 trillion of infrastructure, but it hasn’t been costed at all.

Above all, Hillary hasn’t laid out any of her plans for corporation taxes, which is a worry for the business community. Both candidates are at least agreed that an onslaught is required against large companies that try to move their headquarters abroad for tax purposes. Although how that will go down in Europe remains to be seen.

The Trump grudge against Wall Street Trump’s deep antipathy toward the US financial markets goes a long way toward explaining why he hates the city slickers with such a vengeance. It’s all a little odd since it was the senior bankers who bailed out Trump’s crashed casino, with considerable ingenuity, after his first corporate bankruptcy.

But there we are. What annoys Trump is that the US markets have risen by more than 230% since the 2008 lows – thanks, he

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says, to an absurdly low interest rate, and also to the release of $3.8 trillion of quantitative easing that has put the country into hock. The market’s “all a big bubble”, he told Fox News recently, and he forecasts “something that's not pretty"

Trump’s deep antipathy toward the US financial markets goes a long way toward explaining why he hates the city slickers when rates rise again.

He doesn’t favour a rapid rise in rates, he says – well, who would, with an election coming up? – but he believes that Fed Chairman Janet Yellen has been nobbled by the Democrats to sustain the bubble for a while, and he aims to replace her with a true Republican before long.

Don’t scare the horses - yet Should we be worried by all this?

Only if we think that a President Trump could assemble a practical body of Republican support in Congress. And, given the 150

or so Republican delegates who have already disowned him, the omens on that front are not good.

Which leads us, finally, to the impact that this highly engrossing Punch and Judy show is having on today’s financial markets around the world.

And, although things may have changed by the time you read this, I’m guessing that the markets are doing well to keep their blood pressure down and their worries muted.

It might look like a binary choice between heaven and hell to most of us, but it ain’t necessarily so.

The widening Clinton polling lead (in late October) might not be unassailable, but it’s as good as we’ve got to go on at the moment.

On the present showing, Trump’s ideas are too incoherent to get anywhere; whereas the Ice Maiden may be devious but at least she’s experienced.

Ken Fisher, the perma-bull head of Fisher Investments, has never been one to fret about such indeterminacies. All new governments bring uncertainty and radicalism, he says, and they always end up ploughing the same furrow as all their antecedents. Why worry? Be happy. We’ll do our best, Ken.

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CAREER OPPORTUNITIES Position: IFA (28004) Location: Torquay Salary: Self Employed DOE (very competitive splits) Our client is looking to bring anAn experienced IFA is sought for into the business of a very successful and well established IFA practice in Torquay.

The ideal person would be someone that has existing experience and is conducting a healthy amount of business already. that wants to join forces and have an office based position.

The attraction ofto the role will be that you will beis in being able to continue to conduct your business but in a public- facing office as well as be given additional business leads from the mortgage side of the practice.

This is a fantastic opportunity to move your existing client bank forward and gain healthy remuneration. depending on experience.

Position: Employed Financial Adviser (28003) Location: Carlisle Salary: £40,000 - £60,000 A reputable fFinancial sServices pPractice has created an opportunity for a qualified fFinancial aAdviser to join their successful and dedicated team . You will be working with a dedicated team with a common goal. This is a highly profitable organisation and is well respected in the market for its customer centric model.

This organisation has been able to prosper though the engagement and dedication to provide a quality client service. The senior team is committed to creating a highly rewarding environment which that encourages personal development.

Responsibilities: •

Offer holistic financial advice and formal recommendations thorough financial advice to clients

•

To provide exceptional cClient service, building long term relationships

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To adhere to the principles of TCF to work towards theand working within the company’s compliance standards and professional development scheme

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Delivering formal recommendations

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Following up new business initiatives

Position: Location: Salary:

Independent Financial Adviser (27931) Leeds / Wetherby / York £40,000 - £50,000 + Benefits Package

A reputable financial services practice with a strong Accountancy and Legal arm, has created an opportunity for a qualified financial adviser to join their successful team and contribute to the influential decisions within the business. You will be working within a dedicated team with a common goal, of providing a high quality service to clients and introducers alike. This is a highly profitable organisation which delivers a wealth of information on a variety of financial topics and useful tools to help their clients gain a better understanding of the complexities of personal financial planning.

This organisation has been able to prosper though the engagement and dedication to provide a quality client service, with its friendly and experienced staff. The senior team is committed to creating a highly rewarding environment that encourages personal development.

You will be dealing with HNW professionals coming from sporting backgrounds, so this will be an extremely enjoyable and stimulating role.

Position: Self-Employed Financial Adviser (27958) Location: Wakefield Salary: Flexible Depending on the Individual Are you an IFA looking to join a prestigious and award-winning practice which? Have you been advising but are now looking to join a practice which will provide you with the support and infrastructure to develop your career?

You will be working within aThis IFA practice haswith a fantastic reputation with an experienced management team and support from a dedicated team of paraplanners and administrators. It and provides the have the chance to offer holistic financial advice to an existing client bank. You will benefit from an experienced management team as well as a dedicated team of paraplanners and administrators supporting you.

About the Role: •

You will be wholly responsible for conducting in-depth reviews of clients' financial circumstances, current provision and future aims

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Analysing information and preparing plans best suited to individual clients' requirements to create your personalised service

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You will be proactive in completing risk analyses to drive your personal success within the business

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Reviewing and responding to clients’ changing needs and financial circumstances

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ToUltimately your role will be to provide high standard financial reports whilst keeping up to date with financial products and legislation

Position: Employed IFA (27810) Location: Negotiable DOE Salary: Bournemouth Due to continued expansion, an established Financial Services practice is looking for high quality Independent Financial AdvisersIFAs to join the organisation and assist in dealing with increasing levels of demand.

Full sales support and lead generation is provided. Ideally, you will have experience within an IFA practice already.

You will be Level 4 diploma qualified and working towards chartered status with excellent relationship management skills.

On offer is the opportunity to work with an existing client base where your skills and abilities convert relationships into business.

Responsibilities are to: •

Prospect/contact potential clients toto ensure sales targets are met

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Ensure sufficient client information is obtained and analyse information gathered

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Undertake sufficient product and market research in conjunction with paraplanners

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Ensure suitable recommendations are made.

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Ensure all supporting documentation is available and maintained

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Ensure relevant CPD is maintained and recorded accurately

Position: Independent Financial Adviser (27846) Location: Marlow Salary: £25,000 - £50,000 DOE + Benefits This successful and dedicated team with a common goal are looking for an adviser to join them. This is a highly profitable organisation and is keen to cover a wealth of information on a variety of financial topics and useful tools to support clients’ needs.

This organisation has been able to prosper though the engagement and dedication to provide a quality client service, with its friendly and experienced staff. The senior team is committed to creating a highly rewarding environment that encourages personal development.

You will be dealing with HNW professionals coming from sporting backgrounds, so this will be an extremely enjoyable and stimulating role.

Position: Location: Salary:

Independent Financial Advisor (27931) Leeds / Wetherby / York £40,000 - £50,000 + Benefits Package

A reputable Financial Services Practice with a string Accountancy and Legal arm has created an opportunity for a qualified Financial Adviser to join the successful team and become a key member and contributor to the influential decisions within the business. You will be working within a dedicated team with a common goal, of providing a high quality service to an existing book of introducers and clients. This is a highly profitable organisation and is whom are keen to cover a wealth of information on a variety of financial topics and useful tools to help their customers gain a better understanding of the complexities of personal financial planning.

This organisation has been able to prosper though the engagement and dedication to provide a quality client service, with its friendly and experienced staff. The senior team is committed to creating a highly rewarding environment that encourages personal development.

You will be dealing with High Net Worth professionals coming from sporting backgrounds, so this will be an extremely enjoyable role for those who wish to provide Financial Advice to some interesting clients.

Position: Paraplanning Supervisor (27939) Location: Wakefield Salary: £28,000 - £38,000 A well established, modern financial planning firm whicho specialises in advice for both private and corporate clients, is are seeking a pParaplanner supervisor to join their vibrant team in their Wakefield office.

You will benefit from an experienced management team and work closely with all of the firms IFA’s and administrators in a team based environment where you will be overseeing a team of paraplanners.

The ideal candidate will be an experienced paraplanner looking to take the next step in their career and progress technically within and in return, my client will provide a rich office culture. and sStudy support is available should you want to advance yourself with addwork towards additional qualifications.

Position: Independent Financial Advisor (27846) Location: Marlow Salary: £25,000 - £50,000 DOE + Benefits A reputable Financial Services Practice has created an opportunity for a qualified Financial Adviser to join their successful team.

You will be working with a dedicated team with a common goal. This is a highly profitable organisation and is whom are keen to cover a wealth of information on a variety of financial topics and useful tools to help their customers gain a better understanding of the complexities of personal financial planning.

This organisation has been able to prosper though the engagement and dedication to provide a quality client service, with its friendly and experienced staff. The senior team is committed to creating a highly rewarding environment that encourages personal development.

You will be dealing with High Net Worth professionals coming from sporting backgrounds, so this will be an extremely enjoyable role for those who wish to provide Financial Advice to some interesting clients.

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IHT PORTFOLIO To learn more visit our website, follow us online or contact us: T: 0203 178 4055 E: info@prime-iht.co.uk W: www.prime-iht.co.uk

NOTE: This document is issued by Prestige Asset Distribution Limited, as financial promotion for information purposes only. It should be ignored by any UK recipients who are not either (i) authorised under the Financial Services & Markets Act 2000 (“FSMA”) or (ii) are investment professionals (within article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) (‘‘FPO’’), certified sophisticated investors (within article 50(1) of the FPO), persons of a kind described in article 49(2) of the FPO or certified high net worth individuals (within article 48(2) of the FPO). If you are in any doubt you should consult an independent financial advisor, who should be authorised under the Financial Services & Markets Act 2000 if you are in the UK. This financial promotion has been approved for the purposes of s21 FSMA by Prestige Asset Management Limited which is authorised and regulated in the UK by the Financial Conduct Authority (FCA). Your capital may be at risk and you may not get back the full amount invested. Tax treatment depends on the individual circumstances of each investor and may be subject to change. Past performance is not a reliable indicator of future results and any forecast is not a reliable indicator of future performance. The availability of tax reliefs also depends on the investee companies maintaining their qualifying status. The Prime IHT Portfolio invests into small unquoted companies which are not quoted on any stock exchange and which are likely to have higher volatility and liquidity risk than shares quoted on the London Stock Exchange Official List. First Equity Limited, Prestige Asset Distribution Limited, Prestige Asset Management Limited and Jarvis Investment Management Limited do not provide financial or tax advice on the Prime IHT Service and as this product is not suitable for everyone, investors should seek independent investment and tax advice from suitably qualified advisor(s) before making an application to invest in this product. Please note that all the information and figures in this document are correct as at 09/2015, unless otherwise noted. © 2016

CONTENTS 4. Editor’s Welcome 6. News EIS Magazine is published by

IFA Magazine Publications Limited, The Tobacco Factory, Loft 3, Bristol BS3 1TF Full subscription details and eligibility criteria are available at www.eismagazine.com ©2016. All rights reserved.

Telephone: +44 (0)117 9532 003 Editor-in-Chief: Michael Wilson editor@ifamagazine.com

City Editor: Neil Martin neil.martin@ifamagazine.com

11. Breaking down barriers with Great British investments

12. AIM stocks to help make inheritance tax savings

Douglas Lawson, Director at Amati Global Investors, looks at the current prospects for AIM stocks

Commissioning Editor: Michelle McGagh Publishing director: Alex Sullivan alex.sullivan@ifamagazine.com

14. Market volatility fails to dampen

appetite for alternative investments

Design: Fanatic Design www.fanaticdesign.co.uk EIS Magazine is for professional advisers only.

Full subscription details and eligibility criteria are available at www.eismagazine.com EIS 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 wihtout prior permission. All material has been carefully checked for accuracy, but no responsibility can be accepted for inaccuracies, independent research and where necesary legal advice should be sought before acting on any information contained in this publication.

16. Time to celebrate: AIM has come of age

18. Beyond IHT - the wider benefits of business relief

22. AIM: a stockpicker’s market for IHT planning

Love it or loathe it, the AIM market cannot be ignored, according to Chris Hutchinson, Director of Unicorn Asset Management

26. How to find the newest EIS opportunities

To stay up to date with the latest EIS news visit www.eismagazine.com

28. Open Offers

Our monthly listing of what’s currently available for subscription.

November 2016 · www.eismagazine.com

3

STEADY AS SHE GOES You can hardly blame Theresa May for having more things on her mind than investment matters at the moment. As Britain prepares to set sail for a lonely farewell voyage around its European partners, for which most of us in the finance sector begrudge the price of the tickets, the state of the nation’s smallcap and fledgling companies is probably some way down her list of priorities.

Oh, certainly, the Prime Minister has made some resounding speeches in favour of the small company sector since the Brexit vote. Innovation, courage, collaboration and competitive advantage are as important today as they were in Drake’s era, or Nelson’s for that matter. And ‘alternative sources’ of risk funding which bypass the traditional stocks-and-bonds routes are rightly held up to the public as examples of everything that makes Britain special. None of the European Union countries has anything like the small-company focus that we do – which is odd, actually, since they provide so many of the jobs in France or Germany. And the EIS Association, as you’ll see on Page 8, has not been slow to welcome Mrs May’s statements on alternative funding. All we need to see now is some proper sign that she means what she says.

For some months now, the clouds have been drifting north from Westminster. News of tax purges, punitive reprisals against advisers whose recommendations overstep what HMRC considers to be the mark, and the distinct prospect of major changes in the Autumn Budget have been making the news. (23rd November’s the date for your diaries, by the way.) And up to a point, you can see why. With Chancellor Philip Hammond’s Budget Balance Day now disappearing beyond 2020 and out of sight into the future, some degree of fiscal tightening is to be expected.

Broadening the Campaign Which is an even better reason than ever for the government to redouble its efforts on behalf of the SME sector. Smallcap indices have been beating the FTSE-100 and the All-Share hollow in the last two years, and the development of SEIS, crowd-funding, AIM share investing (in all its forms) and Venture Capital Trust investment bears witness to the enthusiasm and the drive that the country is likely to need, more than ever, if and when we cut our ties with the European Single Market.

There’s also the point that several of the restrictions imposed by the previous chancellor George Osborne on the alternative investment market – notably on renewable energy, and on the eligibility structures of VCTs – came from Brussels rather than from Number 11 itself. Say it

4

EIS Magazine · November 2016

gently, but this may prove to be a turning point in more ways than one.

One way in which things have already turned is that the old emphasis on tax efficiency is no longer the main driving force behind alternative investments. The team behind EIS and IFAM Magazine have helped refocus the narrative with key stakeholders over the last six months and as the EISA letter in these pages shows, the main force of the argument for alternative investments is now on the hugely beneficial role that they can play in developing new ideas and – just as importantly – turning those ideas into viable businesses that can carry the nation forward. England expects. And so do Scotland, Wales and Northern Ireland…

That’s why you’ll notice a change of emphasis in this month’s magazine and from next month we are broadening out our subject coverage to take in a wider range of investments that tackle the burning need for fledgling risk capital – VCTs, BPR strategies, and, in this issue, the “official” Alternative Investment Market, or AIM. Not every adviser will be aware of the many ways in which AIM stocks can contribute to a tax-efficient strategy for more risk-tolerant investors. AIM plays an important part in the construction of VCTs, Business Property Relief and Inheritance Tax strategies. And, as you’ll see from the Octopus chart on Page 17, AIM portfolios have displayed a remarkable lack of volatility over the last 20 years that will surprise some readers.

But, for now, our aim is to redirect your gaze toward the opportunities that still abound for backing one of the most vibrant enterprise cultures in the world. Ours! It would be a foolish Chancellor who allowed short—term fiscal priorities to deflect his aim on Autumn Budget Statement Day, to the detriment of Britain’s enterprise economy.

And we have full confidence that he will do no such thing.

Mike Wilson Editor in Chief

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We are making it easier for Advisers to become more active in the tax efficient investments arena.

We have upgraded our unique investment platform and added tools which allow you to provide better service to your clients. We will give you the confidence and a compliant, intuitive framework to extend your business practices.

Our platform is set to be a game-changer in the Alternative Finance sector, which is itself about to enjoy a bright new dawn.

Make it your business, before others make it theirs.

Find out more at growthinvest.com

News Round up of the latest industry news Advisers warned to start their EIS season early

Seedrs claims top crowdfunding spot Seedrs is once again the UK’s most active investor in private companies, having funded 78 equity deals in the first half of 2016.

A just-published report from a third-party research agency shows that Seedrs made more investments in 2016, so far, than any other equity crowdfunding platform. This gives it a share of the UK equity crowdfunding market which exceeds 50%.

Advisers are being warned to start their EIS season, or risk losing out, according to a senior industry figure.

The warning comes from Chief Executive of Kuber Ventures Dermot Campbell (pictured) who says that advisers should start in October, rather than waiting for the period from January through to the end of tax year which has been the historic pattern.

Campbell said the recent change in legislation, removing the ability to invest in solar energy production within an EIS investment, has reduced the market capacity by £350 million pounds for the year 2016/17. Add in a maturing book of some £200 million, said Campbell, and there is likely to be a considerable impact upon capacity. He points out that last year, it was evident that many advisers brought their EIS “season” forward. This resulted in many sending out recommendations in October and by the end of the tax year, there was very little capacity left.

Campbell said: “Advisers who delay in running due diligence on EIS investment houses and establishing access to capacity in the appropriate assets run the risk of not being able to secure the right assets.

This could mean that, towards the latter end of the ‘season’ investments are made purely on the basis of availability rather than research.”

Furthermore, the changes in legislation have also increased the underlying risk profile of EIS investing by removing the historically lower risk asset classes such as renewable energy. The changes are recognised as a drive by HMRC to make sure that EIS investments are made not just in the letter of the legislation, but also within the spirit.

Advisers can still manage the risks of EIS investing by building diversified portfolios which is now significantly more important as a risk management tool, said Campbell.

Campbell added: “Advisers have long diversified equity investments using platforms, enabling the use of multiple investment managers and different asset classes to reduce risk. With the changes in legislation it is now important that advisers apply the same principles to EIS and SEIS investing.”

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EIS Magazine · November 2016

The 78 deals this year compares with, for the same period, 55 in 2015, and 43 in 2014. Since its launch in 2012, Seedrs has funded more than 380 deals.

Recent investments include: challenger bank Tandem, which raised £2.2 million from 1712 investors; West Berkshire Brewery which raised £1.7 million from 647 investors; P2P lender Landbay which recently announced a partnership with Zoopla and reached £1.6 million with 407 investors; beauty-on-demand app blow LTD which raised £1.3 million; and, annual travel ticket subscription service CommuterClub, which overfunded to £1.2 million.

CEO & Co-Founder at Seedrs Jeff Lynn said: “We are delighted to continue our lead as the most active equity investment platform in the UK and to have funded 78 deals in the first six months of 2016. The gap between Seedrs and the closest competitor is also increasing as Seedrs continues to take 50% market share of all UK equity crowdfunding activity.

It is a great start to what looks set to be a recordbreaking year.

“We haven’t seen a notable slowdown since the referendum in spite of fear mongering around the country. The UK is still attractive and safe for inward investment and will continue to be one of the number one destinations for entrepreneurs to set up a business with its favourable tax reliefs, streamlined business incorporation and simple transport abroad.”

EISA pens open letter to Theresa May

EISA has sent an open letter to Prime Minister Theresa May highlighting the importance of EIS to the economy and calling for a number of reforms to the EIS regime.

EIS Magazine prints the letter in full below: “Dear Prime Minister, The Enterprise Investment Scheme Association (EISA) is deeply encouraged by your establishment of a new Cabinet committee tasked with creating policies and initiatives that deliver a fairer economy that works for everyone.

In particular, we believe you are right to highlight the importance of small and medium-sized businesses (SMEs) as the “backbone of the economy”, and to seek their views on how to get the economy “firing” post-Brexit.

One way of helping to do this is to improve access to equity risk funding. Start-ups and established small and medium-sized businesses can struggle to access the funding needed to grow and to take the next step in their development, with many banks unwilling to lend, or too inflexible in their terms, to be a viable choice for some SMEs. The Enterprise Investment Scheme (EIS), introduced by the Major Conservative government, and its sister funding vehicle, the Seed Enterprise Investment Scheme (SEIS) provide the necessary incentives for high risk equity investment in SMEs. EIS has delivered more than £14bn of equity funding for 25,000 SMEs since it was created in 1994. Fundraising levels have trebled since 2011. In 2014-15, the most recent year for which data has been published, more than £1.6bn was raised by SMEs through EIS – higher than in any previous year.

Against this backdrop, the climate for small-tomedium-sized enterprises in the UK remains hugely positive. We are confident that in the post-Brexit world SMEs will play an ever stronger role as the UK’s engine for growth, employment and innovation.

The vibrancy and dynamism of SMEs is one of the UK’s strongest economic assets and the importance of EIS and SEIS in incentivising the provision of equity investment for SMEs is likely to be even more important as we go forward. EIS is about empowering entrepreneurial companies by providing the investment for them to prosper and grow.

But the schemes are not perfect. Improvements could be made that would improve SMEs’ access to funding via these schemes and perhaps increase total investment levels – benefiting businesses, EIS and SEIS investors and the entire UK economy. Last year a series of new regulations were imposed, under EU direction, which placed greater and more complex restrictions on businesses’ eligibility for EIS and SEIS funding and on the amounts they are able to raise under the schemes.

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EIS Magazine · November 2016

Much of the complexity imposed on these schemes by Brussels needs to be removed to enable these growing companies to make their full contribution to a vibrant UK economy. Lifting most or all of these restrictions would be a quick, simple and decisive step in the right direction to getting the UK economy performing, postBrexit. Such a move would be welcomed by SMEs across the UK and would also serve as a positive demonstration that Brexit can bring benefits, by unshackling business from EU-imposed regulation that hinders their growth. It is worth stating some of the key conclusions from HMRC’s own independently commissioned research (The use and impact of venture capital schemes – February 2016 – HMRC Research Report 355) which investigated the schemes as constituted prior to April 2015.

The research provided evidence that suggests the schemes were working as parliament intended.

A majority of the companies considered the schemes to be essential in securing investment.

Just 11% felt that their proposed investment would have gone ahead without the schemes.

Nine in ten (90%) of investee companies said their company had grown in terms of employee numbers since they first sought EIS or VCT investment. Nine in ten (90%) companies attributed at least part of their growth in employee numbers to EIS or VCT investment.

The median growth in employment since seeking venture capital was 33%, How else could EIS and SEIS be improved to help SMEs get the economy growing post-Brexit?

Greater awareness among politicians and in government. Research by the Entrepreneurs Network has found less than a quarter of MPs have heard of EIS. If more MPs and policymakers are aware of the schemes, they would be able to champion them to businesses in their constituencies. We would like to work with government on this issue.

Greater awareness among businesses themselves. A joint government and EISA campaign promoting the benefits of EIS and SEIS would help raise businesses’ awareness of the schemes and present a powerful message to SMEs that the government wants to help them.

The EISA, which represents the EIS and SEIS industries, can offer a unique insight into some of the challenges that SMES seeking funding, and those that arrange and provide it, are facing.

We would be delighted to discuss further the crucial role EIS and SEIS play in SME equity funding and work with government on how this can be maintained and improved as we seek to build a stronger economy outside the EU. Yours sincerely, Mark Brownridge, Director General Lord Flight, Chairman Enterprise Investment Scheme Association

EISA to help judge Stelios Award for disabled entrepreneurs in the UK For the second year running, the EIS Association (EISA) is supporting the Stelios Award for Disabled Entrepreneurs in the UK. EISA members will be asked to contact disabled entrepreneurs they know who might want to apply for the award.

The award, which comes with a first prize of £30,000 and four runner-up prizes of £10,000, is run in association with the charity Leonard Cheshire Disability.

Former EISA Director General and now special adviser Sarah Wadham, who will once again be on the judging panel, said: “Starting and running a successful business is a challenge for anyone, and EISA encourages entrepreneurship regardless of who the individuals involved are.

The deadline is 10 October, 2016.

EISA Director General, Mark Brownridge, said: “EISA is delighted to support the Stelios Awards for Disabled Entrepreneurs in the UK. I’d like to encourage all of our members to consider whether they know an individual or company or would be eligible to enter and to tell them about the awards.”

Sir Stelios said: “I am delighted this idea I had 10 years ago has matured to be an institution still supported by the leading charity in the UK in the field of disability. To celebrate our 10th anniversary I have decided to increase the cash prizes to £70,000 and make it more inclusive so even people with a worthy business plan can apply before they have a real business. Spread the word so we can get more applicants than ever before.”

“Nevertheless, it was an extremely humbling experience to judge the Stelios Awards for Disabled Entrepreneurs last year. I realised how difficult it could be for some of the 2015 entrants to go about their normal lives, doing things that able-bodied people take for granted. So establishing a successful business, on top of the additional challenges that can come with having a disability, is an achievement truly worth recognising and rewarding.

“It’s a real honour to be asked to be a judge again this year and something which I’m very much looking forward to.”

Start-ups and pre-revenue businesses are eligible. The main eligibility is:

• a company owned by a person with a disability; • a company which predominantly employs disabled people; • a company that supplies products or services to disabled people.

Edge takes on two senior investment personnel Edge Investments, which specialises in the creative industries sector, and whose funds include Edge Performance VCT and Edge Entertainment EIS, has appointed Steve Carle as Investment Director and Joanna Smith as Investment Manager.

Investments. They each bring a different and valuable set of skills and investment experience to our investment team and I believe the combination will enhance our core team to the distinct advantage of both our investors and the management teams of our portfolio companies.”

An experienced private equity and venture capital specialist, Carle has had a 20-year-career with the UK’s two leading mid-market private equity companies, 3i Group and LDC, the private equity arm of Lloyds Banking Group. He left in 2010 to take on a number of private business opportunities, before joining Edge.

Edge’s previous investments have included live events featuring Jennifer Lopez, Eric Clapton, Leonard Cohen and the Rolling Stones, and children’s entertainment The Clangers, Beast Quest and Poppy Cat.

Smith has spent her career in finance both in practice at PwC and then in an investment role at Channel 4. There she launched a new fund to invest in UK independent television production.

The pair will focus on the £40 million Edge Creative Enterprise Fund, launched in November 2015 with backing from the British Business Bank. They will also manage Edge Performance VCT, a specialist venture capital trust focusing on the creative industries and the technologies that enable them, and its portfolio companies.

David Glick, Chief Executive of Edge, said: “I am very pleased to officially welcome Steve and Jo to Edge

November 2016 · www.eismagazine.com

9

INFORMATION

MEMORANDUM For further information, please contact

Nicola Johnston Head of Finance nicolajohnston@chfmedia.com +44 (0)845 512 1000

www.chfenterprises.co.uk i

BREAKING DOWN BARRIERS WITH GREAT BRITISH INVESTMENTS

There are numerous products available within the long established EIS, VCT and BPR market that are not only providing valuable support and investment for the UK economy, for start-ups and fledgling new businesses – but also provide great prospects for superior investor returns too.

It’s a market that is worth billions, has the support of the government and can offer outstanding returns and tax benefits. Yet these are often overlooked by advisers when planning client investment portfolios due to fears around risk and effective due diligence.

Mark Brownridge (pictured), who became Director General at the EIS Association (EISA) earlier this year, said advisers were open to the opportunities provided by EIS, VCT and BPR.

At IFA Magazine’s Great British Investment Roadshows we’ll be getting down to detail, looking at what works and what doesn’t as well as helping you to ensure that you get the information you need upon which to make appropriate recommendations to clients. Join Mark Brownridge and the IFA Magazine Events team at the roadshows which are exclusive to the adviser community and are taking place in London on 15 November and Edinburgh on 22 November.

Find out more at www.ifamagazine.com/events.

“Since joining EISA, I’ve been taken aback at how readily advisers are willing to share their views on investing in EIS and other attractive asset classes,” he said.

“The subject always generates plenty of debate and discussion but what is clear is that investing into these asset classes, which is about a whole lot more than just their tax efficiency, is moving out of the shadows and is increasingly entering the mainstream investment arena.

“What I’m hearing from advisers and planners now is that their focus is on how to break down some of the barriers to advising in this area and make the most of the opportunities available. The good news is that advising in this area doesn’t have to be onerous or complex compliance wise. There are some very simple steps you can take to boost the potential returns available and reduce the risk of investment such as diversifying across a portfolio of investments and undertaking comprehensive due diligence.”

Isn’t it time you became more familiar with the detail of these schemes? If so, that’s where IFA Magazine Events can help. Of course, these products are not going to be suitable for each and every one of your clients, however these are rapidly establishing themselves as mainstream investments which fully deserve their place as part of a diversified investment portfolio.

November 2016 · www.eismagazine.com

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AIM STOCKS TO HELP MAKE INHERITANCE TAX SAVINGS Douglas Lawson, Director at Amati Global Investors, looks at the current prospects for AIM stocks

Inheritance tax (IHT) planning is all about saving tax.

Assets that qualify for business property relief (BPR) are exempt from IHT, potentially saving the deceased’s beneficiaries a 40% tax bill.

For this reason, the starting point for considering a specific BPR qualifying asset must be: is my (realistic) maximum loss on this investment less than 40%.

One such BPR qualifying asset is unquoted shares, including those listed on the Alternative Investment Market (AIM) of the London Stock Exchange. Portfolios of AIM shares have been an increasingly popular destination for IHT planning. It is difficult to know how much money has gone into AIM IHT portfolios due to the lack of disclosure from some providers of the service but the best estimate we can find is from Intelligent Partnership, which puts the number at £750 million.

If the starting point is avoiding losses, rather than making profits, it is logical to assume that investment managers will seek out the least risky shares listed on AIM. Most would interpret ‘least risky’ as the largest, most liquid shares on AIM. The largest share on AIM is ASOS, the online clothing retailer, which is capitalised at £3 billion and trades an average of £27 million of stock every day. Even if every AIM IHT manager held a 5% position in ASOS, the combined holding would be worth £37 million (5% x £750 million of AIM IHT assets under management) and could be traded (theoretically) in under two days. On this basis, ASOS certainly ticks that size and liquidity box.

Below ASOS, the AIM top 10 was made up of the following stocks as of 3 June 2016: GW Pharma (a biotech specialising in cannabinoids across a range of therapeutic

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EIS Magazine · November 2016

areas); ABCAM (the online sale of antibodies); Hutchison China Meditech (a diversified, Chinese healthcare business); Dart Group (operator of the Jet2 airline and holiday business); James Halstead (a manufacturer of flooring products); Fever-Tree (a producer of premium tonics and other drinks mixers); Breedon Aggregates (a supplier of asphalt and concrete); Plus500 (an online platform for trading contracts for difference); and Burford Capital (a litigation funding business).

This is an interesting list of stocks, all of which we believe qualify for BPR. Two of these stocks (GW Pharma and Hutchison China) are loss-making but the other eight stocks trade on a mean forward price/earnings ratio of 27.5x.

To prove that these are not anomalies, we extend this list to encompass the next 10 largest AIM stocks that quality for BPR, EMIS, Clinigen, Mulberry, BooHoo, PureCircle, 4D Pharma, Nichols, RWS, CVS, First Derivatives and we find that, excluding one outlying stock, the aggregate rating falls slightly, but only to 27.0x price/earnings ratio. By most measures, this is an expensive price/ earnings ratio.

In certain circumstances, a high rating can be justified by the very high growth prospects of a business. Fever-Tree, for instance, has a price/earnings ratio of 43.0x but 2016 earnings per share (EPS) is expected to be 44% higher than 2015. However, several of these stocks with high ratings have low growth prospects. James Halstead is rated at 24.6x but EPS growth is expected to be 5.9%.

Under normal circumstances, this would be considered expensive, even for a company with the undoubtedly high qualities of James Halstead.

The chart shows that the FTSE 100 trades in a price/ earnings ratio range of 16-18x, tapering to 14-16x in the FTSE 250 and upper end of the FTSE Small Cap, before falling to a 10-12x range by the bottom of the Small Cap Index. With AIM, there is a very prominent spike at the top of the market at around 20x earnings before the market falls to a range of 12-16x. Closer to the bottom of AIM, the rating settles in the 10-12x range.

Few would consider the stocks at the bottom of AIM to be suitable for an AIM IHT Portfolio, but there appears to be a sweet spot of stocks below the spike that offer a significant discount. A discount to reflect reduced

liquidity would be expected but the variance that has opened up appears extreme.

The conclusion to be drawn from this is that a large proportion of investment into AIM companies for IHT planning has gone into a comparatively small number of stocks at the top of the AIM market. This has had the predictable effect of squeezing up valuations as AIM IHT inflows chase a relatively fixed number of stocks. There are undoubtedly good quality companies in this area but valuations at the levels discussed, without growth rates to support the price/earnings ratings, should be treated with caution.

The chart below is compiled by Liberum Capital and illustrates the distortion of valuations within AIM.

20x

FTSE 100

FTSE 250

FTSE

SMALL CAP

FTSE

AIM ALL-SHARE

6x £100bn

£20m FTSE All Share stocks in mkt cap order

AIM stocks in mkt cap order

November 2016 · www.eismagazine.com

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MARKET VOLATILITY FAILS TO DAMPEN APPETITE FOR ALTERNATIVE INVESTMENTS Annabel Brodie-Smith, Communications Director at the Association of Investment Companies, examines why VCT fund-raising has been so strong It’s been a highly eventful time with the Brexit decision and political shenanigans dominating the news agenda (and everything else!). It will inevitably be a while before the dust settles and we understand the longterm implications of the referendum result.

Despite the market volatility in the first quarter of this year, the VCT sector raised £457.5 million in the 2015/16 tax year – the third highest total on record. This compares to £429 million in the 2014/15 tax year, which itself was a strong year for fundraising and was the fifth highest on record.

So why was the 2015/16 tax year quite so strong for fund raising? Well the previous Chancellor’s pension revolution has had an important impact on demand for VCTs. First came the ‘freedoms’: Lamborghinis, the death of annuities, pensions as ATMs. Then, the turn of the screw: annual and lifetime allowances both cut, plus a tapering away of the annual allowance for high earners to as little as £10,000.

Though top earners are the most affected by all this, it’s surprisingly easy to reach the lifetime allowance over a career – pension savings of £418 a month over 40 years, at a growth rate of 7%, will see you hit the £1 million jackpot (or rather, HMRC hits the jackpot, because an investor becomes subject to tax of up to 55% on the excess).

One possible way to counter this is to use VCTs to supplement pension savings and this partly accounts for the recent popularity of VCTs. The tax benefits are comparable to pensions, with upfront income tax relief of 30% on new VCT shares provided they are held for

NO SOUTH EAST BIAS HERE

five years. But the contribution limits are much more generous: up to £200,000 a year, and no lifetime limit.

There’s also no tax on the way out: both dividends and capital growth are tax-free.

Of course, the risks of VCTs are clear: the companies they back are small and some will fail. But average VCT performance over the long term has been respectable, with a total return of 107% over the past 10 years, which excludes the 30% tax relief, and the average yield is 9.2%, largely generated from the profits VCTs make when they sell businesses. All this is very welcome at a time when the benefits of pensions are increasingly constrained.

It’s thought-provoking to hear managers’ views on the demand for VCTs. Stuart Veale, Managing Partner of Beringea LLC and Manager of ProVen VCTs, says: “Private investors are turning to VCTs in ever greater numbers, attracted by the sector’s strong historic performance, including regular tax-free income, enhanced by the initial 30% income tax relief.”

Paul Latham, Managing Director of Octopus Investments, says: “Investors are increasingly using VCTs to complement their existing portfolios and to take advantage of the tax incentives available, which we believe is demonstrated by the 74% increase in £50,000-plus VCT applications Octopus received in 2015 compared to 2013. This also seems to be an indication that the government’s recent efforts to address tax avoidance, has moved many investors towards government-approved schemes that are recognised as a vital source of funding to grow the UK economy.”

AVERAGE COMPANY SECURING VCT INVESTMENT CREATING

55%

51 JOBS

AVERAGE TURNOVER

The majority of VCT investment (55%) was invested outside London and the South East across the UK.

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EIS Magazine · November 2016

£12 7m

VCTs haven’t been immune from Treasury rule changes – in fact, there have been frequent alterations to the scheme since it was launched in 1995. In the Budget last year, the chancellor announced that VCT money could no longer be used to support companies that made their first commercial sale more than seven years ago – effectively limiting the scheme to young companies, although there were a number of exceptions to this rule.

The exceptions include a longer time period of up to 10 years which will apply for ‘knowledge-based’ companies.

In addition, no time period will apply where the total amount invested represents more than 50% of the annual turnover (averaged over five years) of the investee business. Management buy-outs, or any other deals in which the control of a business changes, were also outlawed. The chancellor has also introduced a lower than expected lifetime investment limit, which will be £12 million rather than the £15 million previously announced.

An exception will be made for investment in ‘knowledgeintensive’ companies, where the limit will remain at £20 million.

While any restrictions on what VCTs can do are unwelcome, it’s worth remembering that VCT managers are experienced in dealing with moving goalposts. In 2006, for example, there was a radical change in the size of companies VCTs could invest in, with the gross asset limit slashed from £15 million to £7 million and the maximum headcount of an investee company from 250 to 50. Concern was expressed, but VCTs still found worthwhile companies to invest in until the changes were reversed in 2012.

Some advisers’ clients may be interested to know that the money they invest in VCTs is used to grow UK businesses, especially if they have run and grown businesses themselves. The Association of Investment Companies estimates that the average company securing VCT investment has gone on to create 51 jobs and grow average turnover by £12.7 million comfortably returning HMRC’s ‘investment’ in the form of national insurance contributions, corporation tax and other business taxes.

Looking in greater detail at the AIC’s latest VCT industry survey there are a number of economic benefits. The top sector for VCT investment was technology and IT, followed by business services, and manufacturing

and engineering. Interestingly, the technology and IT companies that have received VCT investment boast a 212% increase in employment levels. The majority of VCT investment (55%) was invested outside London and the South East across the UK. While London continued to attract the largest share of VCT investment in 2014 (26%), it is particularly significant that Scotland received 20% of VCT investment in comparison to an average of 8% in previous years. The North of England also benefitted from an increase with 13% of investment, up from an average of 11% in previous years.

The survey also clearly highlights VCT’s ability to address the ‘finance gap’ affecting SMEs seeking funding between £250,000 and £5 million. The average size of the initial VCT investment in an SME is £2.32 million which rises with follow-on investments to an average of £3.01 million.

The benefits of VCT investment are often immediate and analysis of SMEs that received initial investment in 2013 show that 77% of companies increased their turnover by an average of £1.5 million the following year. In Scotland alone there was an increase in turnover of 34% for investee companies. It’s interesting, post the referendum decision, that in 2014 39% of VCT investee companies generated turnover from exports. This figure is higher than the previous year and higher than the average for SMEs across the UK. Overseas markets accounted for 30% of the turnover of exporting investee companies.

The perception that VCTs deliver value for money is one reason they have survived several changes of government and rules since being launched by then Conservative chancellor Ken Clarke 21 years ago. Interestingly, the VCT scheme has even been studied by other EU nations, including France, as an example of how growing businesses can be supported by channelling tax relief.

All of this makes VCTs an interesting vehicle to supplement a pension in these uncertain times and it’s not surprising that fund raising was so high this tax year in light of the pension changes. Both are long-term – pensions by definition, VCTs because of the nature of the asset class and the structure of the tax wrapper. VCTs are inherently risky – otherwise tax breaks wouldn’t be available – but experienced managers and diversified portfolios of companies go some way towards mitigating those risks.

AVERAGE SIZE OF INITIAL VCT INVESTMENT IN A SME

VCT SECTOR

£2.32m £457.5m RAISED

2015

2016 November 2016 · www.eismagazine.com

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TIME TO CELEBRATE: AIM HAS COME OF AGE The Alternative Investment Market has turned 21, and Richard Power, Head of Smaller Companies at Octopus Investments, looks at what makes it a success Having recently celebrated its 21st birthday, the Alternative Investment Market (AIM) has faced more than its fair share of character-building events through the years.

AIM by value was exposed to companies in the resources sector. Therefore, neither Brexit nor the proposed merger between the LSE and Deutsche Boerse should hold any fear.

Back in 2000, the junior growth market of the London Stock Exchange (LSE) survived the aftermath of the dotcom bubble, a turbulent period which hastened the demise of its French and German counterparts. AIM also successfully navigated its way through the global financial crisis. In fact, in 2008 and 2009, when other financing doors were being slammed shut, fast-growing AIM-quoted companies managed to raise £10 billion. The resilience of AIM was tested once again in 2010, as the commodity price bubble deflated, by which time 45% of

The secret behind the success of AIM is its ability to evolve.

When it was launched in 1995, AIM was intended to be a platform for small growth companies to gain access to capital. In that respect, it has succeeded spectacularly, raising over £96 billion of funding on behalf of over 3,600 companies, supporting over 750,000 UK jobs. The indirect impact of AIM – for example benefits to suppliers and employees spending wages, shows total economic contribution of £25 billion of GDP, which is more than the UK’s aeronautical or pharmaceutical industries.

AIM: the facts and figures • Since its inception in 1995, the market has supported more than 3,500 AIM companies.

• By the end of 2014, UK-incorporated AIM companies represented 81% of all new admissions to AIM and 80% of the total stock of AIM companies.

• AIM companies contributed £14.7 billion to UK GDP and directly supported more than 430,000 jobs in 2013.

To put these numbers in context, the UK aerospace and automotive industries – two of the UK government’s key industrial sectors – make an economic contribution of £9.4 billion and £11.5 billion respectively, while the UK pharmaceutical sector contributes £13.3 billion.

• AIM companies made a significant tax contribution of £2.3 billion to the Exchequer

AIM is home to a wide variety of companies that offer the potential for growth and dividends. The market has had some tremendous success stories over the years. When online fashion retailer ASOS turned to AIM in 2001 as a very small loss-making e-commerce business, options for growth capital were limited. The dotcom bubble had burst and confidence in online business models had been severely damaged. ASOS found the funds it needed via

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EIS Magazine · November 2016

AIM and has since gone on to become a global success story, currently valued at over £3 billion. Today, AIM is thriving and attracting a range of UK success stories.

Well-known British brands, including Fever-tree, Joules and Hotel Chocolat, have all recently turned to AIM in order to fund the next stage of their growth.

Not all plain sailing But while investors may choose to access AIM through direct investments, the necessary due diligence requires time, resources and experience. It’s in the nature of smaller companies that not all of them will survive.

Therefore, investing via a dedicated AIM-focused fund is likely to alleviate some of these concerns, while potentially also increasing the diversification benefits to investors.

Active management generates most value when an asset class is inefficiently priced. This is certainly the case with smaller companies where a lack of research and market coverage creates pricing inefficiencies, which are typically exacerbated following a period of volatility. Expertise and focus in smaller company AIM-listed shares therefore creates the opportunity for significant outperformance, and active management can bring the potential of AIM to life for investors.

Successive governments have acknowledged the importance of AIM as part of the UK’s growth capital ecosystem, and a number of AIM stocks offer tax incentives designed to encourage those investors prepared to take on the higher risks associated with backing smaller companies. Tax incentives made available through EIS

The best way for investors to approach smaller companies is to take a long-term outlook. As the chart below demonstrates, while the asset classes are not comparable on a like-for-like basis, smaller companies have outperformed larger companies considerably over longer time periods. There’s no real mystery here – smaller companies simply grow their earnings faster. Therefore, provided investors have a long-term horizon (of more than five years), and are willing to accept higher risks in pursuit of higher potential returns, actively managed AIM portfolios offers enormous investment potential.

Low Volatility, High Potential

900

Over the years, AIM has succeeded by staying true to its founding principles: accessibility for ambitious growth companies, open to investors of every kind, a regulatory approach that recognises the needs and capacities of growth companies, and a market open to learning and evolution. Such positive attributes are needed now more than ever. In other countries, many of which have failed to establish a market for smaller companies, AIM is envied as a great source of long-term finance for innovative, aspirational companies requiring capital to reach their full potential. We don’t expect that to change any time soon.

and VCTs have played an important role in maintaining investor appetite across the full market cap spectrum on AIM. Alongside these is another valuable incentive called business property relief (BPR). Shares that qualify for BPR become exempt from inheritance tax after two years, provided the investor still holds the shares upon death. In addition, the government has abolished stamp duty on the purchase of AIM-quoted shares and further broadened the market’s appeal by allowing AIM-quoted shares to be held via an ISA. In short, there are many ways in which investors can capitalise on AIM stocks tax efficiently.

0 1995

2016 FTSE All-Share TR

IA UK Smaller Companies TR

Source: Lipper, 30 June 2016. Indexed Performance, Total Return from 30 June 1995 - 30 June 2016

November 2016 · www.eismagazine.com

17

BEYOND IHT - THE WIDER BENEFITS OF BUSINESS RELIEF Low yields and uncertainty around Brexit means interest in business relief is increasing, says Jack Rose, Head of Tax Products at LGBR Capital With interest rates at record lows and forecast to remain below 2.5% for over seven years, today’s low yield environment continues to be the ‘new normal’ for investors and presents a significant challenge for income seekers. The UK’s decision to opt for Brexit (whatever that ends up meaning) has also seen volatility return to mainstream asset classes, equities and FX in particular.

6

British Pound Swaps Curve - Projection

0 Jan 2009

Source: Bloomberg 16/09/16

Jan 2025

This has been the backdrop to an increased interest in products using business relief (BR), many of which aim to provide capital preservation and attractive levels of regular income alongside their primary focus of inheritance tax (IHT) mitigation for investors. In conjunction with HMRC’s IHT receipts for the 2015/16 tax year hitting an all-time high of £4.6 billion (with an increase to c.£5 billion forecast for the current tax year) the demand for IHT products looks set to continue to grow.

‘additional’ benefits has increased, so has the profile and popularity of BR focussed solutions.

Business relief is not a new piece of legislation (it was introduced in the 1970s) but it is only relatively recently in the past 10 years or so - that it has grown in popularity with advisers and investors.

• those that invest in a portfolio of AIM stocks – seeking growth and income whilst also qualifying for ISA investment

Historically advisers tended to rank BR solutions behind more traditional estate planning options such as trusts.

However, as trust rules have become ever more complex, BR has continued to grow in popularity as the greying population demands more dynamic and flexible estate planning options.

The benefits of BR relating to its speed (only two years before IHT mitigation), control and flexibility (investors own the underlying asset) are well known. Less well known are advantages such as replacement relief that allows investors to move from one BR qualifying asset to another without restarting the two year IHT exemption clock, so long as they have held shares in any BR qualifying asset for two of the last five years, which is a real advantage for business owners.

Another is the ability for advisers to utilise BR in cases involving Power of Attorney. As awareness of these

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EIS Magazine · November 2016

Correspondingly the market for BR products offered by investment managers has seen a dramatic expansion, with over sixty different options now available and several managers with track records of more than 10 years.

IHT strategies that utilise BR can, at a basic level, be divided into two buckets;

• and those that specialise in alternative asset backed strategies, focusing on capital preservation Here we will focus on the latter bucket, as these investment strategies can provide attractive levels of regular income with low correlation to traditional asset classes, as we mentioned at the top of the article. Investing in AIM stocks can also provide the opportunity for long term capital growth and income - but it does, as you would expect, have a high correlation to equity markets and therefore comes with a level of associated volatility.

Preserving capital Most capital preservation IHT products are usually structured as discretionary managed services, in which investors are allocated shares in one or more underlying, investee companies. It is these companies which qualify for BR and in which the investor holds shares. Some

qualifying investee companies use an LLP or LP structure but these are less frequent and are predominantly used for corporate investors.

When comparing providers, although the overall structure may look very similar, one key point of difference is the underlying investment strategies and sector focus.

Obviously it is extremely important to understand the specific underlying sector or nature of the investee company’s business, because this, like any business, carries its own opportunities and threats, which investors need to be aware of and be comfortable with.

There is a plethora of different sectors available for investment, from renewable energy, secured leasing/ financing, property lending to media and many more.

Potential target returns also vary from cash plus to equitylike returns, although the majority of products offer returns in the range of 3-6% alongside capital protection.

With the Bank of England’s base rate at 0.25%, you can see the attraction.

As the IHT product space grows and matures, there is now an increasing number of product providers who can demonstrate track records of delivering these returns across multiple market cycles. Of course it goes without saying that any past performance is certainly no guarantee to future performance.

The below graph provides a good illustration of these steady uncorrelated returns against wider equity markets:

60%

0% Apr 06

Apr 16

-80%

Triple Point Generations Strategy Fund

Aim All Share TR

Belinda Thomas, Director of Triple Point Investment Partners, which has specialised in IHT products since 2006 agrees: “BR qualifying investments are increasingly becoming more mainstream, as a complementary addition to a client’s existing portfolio, given that their returns tend to be uncorrelated to the traditional asset classes.”

Choosing the right solution So how should investors and advisers choose between the sixty or so different options available in the market?

All the points previously mentioned are important areas to consider, such as such as track record, returns (after fees) and the underlying investee company. But there are others such as liquidity, size of the offering, the pedigree and expertise of the investment team.

For investors keen to research the market there are a number of independent sources that offer due diligence and research such as; The Tax Shelter Report, The Tax Efficient Review and MiCap. As with most investments a diversified approach is a prudent way to manage some of the risks, not just utilising different providers but more importantly diversifying by underlying trade or business sector of the investee companies.

FTSE 100 TR

The last aspect to consider is accessibility. Many of these solutions are structured as discretionary managed services that invest in one or a small number of unquoted businesses, which means the risk profile will not be suitable for all investors. For advisers recommending these types of strategies for clients there are also considerations around PI and compliance. Also, they are also not available on mainstream platforms which increases accessibility issues.

In conclusion, the benefits of BR strategies such as speed of IHT mitigation, control for the investor in directly owning the underlying asset, replacement relief and Power of Attorney make them useful tax-planning products. However, whilst not without risk, these products can also provide an attractive yield in today’s low income environment alongside their capital preservation objective which widens investor benefits beyond the obvious need for estate planning– as long as investors have assessed the important considerations such as diversification, the business sector and the expertise of the provider’s investment team.

November 2016 · www.eismagazine.com

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Why choose a

‘Smart Passive’ approach to tackle IHT?

AIM recently celebrated its 21st birthday, and over those years the index has evolved hugely. As of June 2016, there are now 829 UK and 187 international listed companies on AIM with a combined market value of £74 billion, a substantial growth from when the index launched in June 1995, with just 10 UK-listed companies, which had a combined market cap value of over £82 million.

However, one aspect of investing in AIM has remained constant during its lifetime – the way in which investors are able to access the market. Considered a high-risk investment, owing to the junior nature of many of the companies listed on the index, investors have trusted their money with active fund managers in the hope they can pick the winners on their behalf.

But what if there was another way? One which reduced the volatility of investing in this asset class, thereby reducing some of the risk associated with AIM? At the same time, what if this service could help mitigate a client’s inheritance tax (IHT) liability, which is an increasing problem for many people?

TIME Investments believes it has found the answer and has launched the first AIM IHT service that adopts a ‘smart passive’ approach to AIM investing. The TIME:AIM service offers investors the opportunity to reduce their IHT liability after just two years using Business Property Relief (BPR), via a portfolio of 20 to 25 qualifying shares which are all constituents of the AIM 100.

What is ‘smart passive’?

TIME’s investment methodology employs a series of rigorous criteria, to select a portfolio of typically 20 to 25 shares of the largest, most mature and robust BPR qualifying companies available within AIM. The portfolio will be rebalanced periodically to ensure it continues to include the most appropriate AIM companies and a balanced weighting for each holding. TIME’s focus is to acquire shares in the largest AIM companies available, meaning a portfolio will typically be limited to the companies found on the FTSE AIM 100.

TIME believes that mature, profitable businesses provide the best risk-adjusted returns for investors seeking to mitigate IHT via a portfolio of AIM shares. Consequently, its screening process favours those companies which have sufficient free cashflow and retained earnings to pay dividends.

Why the ‘smart passive’approach?

TIME’s smart passive approach seeks to remove the subjectivity of decision making and emotional bias which can affect the investment decisions made for portfolios which are actively managed by a fund manager. The smart passive approach uses verifiable financial and commercial information published by AIM companies to determine the portfolio of shares for an investor, rather than relying on an individual stockpicker’s opinions regarding the future commercial success of AIM companies and the quality of their management teams.

The smart passive approach provides a robust investment strategy which is less exposed to human risk factors, such as the departure of a fund manager or stockpicker bias.

A welcome secondary benefit of this approach is that TIME are able to offer this service at almost half the annual management fee of many of the traditional AIM and AIM ISA fund managers.

How does ‘smart passive’ work?

In short, BPR qualification is essential. The AIM market contains a diverse range of over 1,000 companies, many of which will not qualify for BPR as they conduct excluded activities. TIME will evaluate each AIM company which passes the screening process to ensure that BPR should be available on the shares. All AIM companies in the portfolio will be regularly monitored by the TIME investment team to ensure that BPR continues to be available.

Investor’s portfolios will be rebalanced on a periodic basis, to refresh the portfolio with the AIM companies as selected by the smart screening process. The rebalancing process will also ensure that an investor’s holdings are evenly weighted. This way, no individual AIM company will represent a significant part of the overall portfolio value for a prolonged period of time. This approach seeks to reduce the specific risk to investors of a material downturn in a particular company’s trade.

TIME’s track record TIME provides tax efficient investment solutions, with their original IHT service boasting a 20 year track record of successfully achieving IHT savings for investors. Winner of Best BPR Manager 2015, TIME’s service was one of the first to use BPR to offer IHT mitigation for investors and holds the longest track record in this market.

If you would like to find out more about TIME:AIM please visit:

time-investments.com or alternatively, you can call us on:

020 7391 4747

AIM: A STOCKPICKER’S MARKET FOR IHT PLANNING Love it or loathe it, the AIM market cannot be ignored, according to Chris Hutchinson, Director of Unicorn Asset Management The Alternative Investment Market (AIM) is one of those markets that divide opinion.

Many private investors believe in the high growth investment opportunities to be found on AIM and appreciate the generous tax benefits available from investing in AIM. However, other investors avoid AIM because of some of the horror stories surrounding individual company failures and the relatively poor performance of the headline FTSE AIM Index over the past 20 years.

So who is right? The short answer is that both views are valid.

The poor performance of AIM is well documented. Since inception the FTSE AIM All-Share Index has returned -2.41% on an annualised basis; hardly stellar returns.

Then there are the stories of high profile failures like African Minerals, Globo and Quindell, as well as concerns over the lack of regulatory oversight within the market.

It is true that the regulation and listing requirements for companies seeking a listing on AIM are less onerous than those for companies seeking a main stock exchange listing. For instance, unlike a full listing, companies are not required to produce financial records for at least the past three years nor do they need a minimum market capitalisation amongst other things.

But there is a far more positive side to the AIM story that deserves to be heard. Part of the rationale behind the less onerous regulatory framework was to create a more flexible environment in which smaller, less mature companies could raise capital. Since its launch over 20 years ago the AIM market has helped over 3,500 companies to raise capital through listing on the index.

While many other junior markets have failed, AIM has continued to grow from representing just 10 companies at inception to over 1,000 today with a combined market capitalisation of over £75 billion as at the end of August 2016. There are now 70 AIMlisted companies which have a market cap of £250 million or more, including some household names such as ASOS and Fever-Tree.

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EIS Magazine · November 2016

Government support AIM continues to be supported by the UK government, which clearly recognises the stimulus that AIM can provide in terms of capital funding and employment creation. As a result, the tax benefits available remain attractive to private investors. Many companies that seek a listing on AIM are eligible to receive State Aid funding under the government’s tax-advantaged VCT and EIS schemes, while the abolition of stamp duty and the ability for individuals to hold AIM stocks in their ISAs has helped attract a broad range of investors (and their capital) to the market.

For those investors willing to do the work, AIM presents an opportunity to unearth investments with the potential to deliver meaningful returns. Many of the companies listed on AIM do not receive the same level of analyst research and broker coverage that is afforded to companies listed on the main market. AIM is therefore a market that represents both risk as well as significant opportunity. For investors willing to diligently sift through the whole market there are some real gems to be discovered.

Success stories such as Numis and Abcam are just a couple of examples of tremendous AIM listed companies that can be highly rewarding as investments if you have

AIM continues to be supported by the UK government, which clearly recognises the stimulus that AIM can provide in terms of capital funding and employment creation

probably to delegate responsibility to a professional fund manager with the expertise, experience and resources to identify opportunities on behalf of their investors, thereby helping to mitigate some of the risk.

the time and resource to unearth them. Numis now has a market cap of c.£250 million and has returned well over 7,500% since it first listed.

Abcam is a great example of how well the AIM market can work for profitable, high growth, high quality businesses.

Abcam is a producer and marketer of quality protein research tools. These tools enable life scientists to analyse cells at a molecular level, which is essential in a wide range of fields including drug discovery, diagnostics, and basic research. It is a profitable and highly cash generative business with a leading position in a growing niche market, a strong record of organic growth and an experienced management team.

We follow a rigorous investment process and apply strict criteria when researching new businesses. This approach allows us to uncover some of AIM’s hidden gems and, perhaps more importantly, helps us to avoid the failures.

From a market capitalisation of £57 million at flotation on AIM, Abcam has grown to become a £1.7 billion business and crucially it is still listed and thriving on the AIM.

Professors Dimson and Marsh of the London Business School summarise this thought in a particularly succinct way: “Everyone says AIM is a stockpicker’s market, but what they mean is that there are extremes of performance – both on the downside and the upside…the best people equipped to sort the wheat from the chaff are the professional investors.”

So, if it’s best to leave the stockpicking to the professional investors what products do they offer for private investors?

Although it is possible to gain exposure to AIM through a variety of different products (OEICs, Investment Trusts & Enterprise Investment Schemes) the two most popular investment vehicles for private investors are VCTs and the AIM IHT ISA Portfolio Service. As mentioned earlier, attractive government legislation has proved extremely important in supporting investment into the AIM market and none more so than the changes made in August 2013, which for the first time allowed people to invest in AIM stocks through their ISAs.

Failures vs successes

Although investing in AIM companies for IHT mitigation is not a new phenomenon (it has been possible for decades), the changes to ISA rules in 2013 were a catalyst for new wave of investment into AIM from investors looking to mitigate IHT by switching at least a portion of the value of their ISAs out of fully listed companies and into AIM quoted companies.

It is clear however, that despite being able to point to success stories such as Numis and Abcam, the failures outnumber the successes on AIM. For private investors with limited resources to accurately identify opportunities, the risk of making investment errors is greatly increased.

The most effective strategy for investing in AIM is

This rule change opened up the market for specialist providers to manage assets in a previously inaccessible marketplace – there are now at least 22 million ISA account holders which together represent over £500 billion in total assets and so it is clear that this represents a significant opportunity.

November 2016 · www.eismagazine.com

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The IHT issue This has been fuelled by a growing IHT issue for many people. To put this in context, IHT receipts have increased 60% in the last five years with a record £4.6 billion taken in IHT receipts last tax year. Investing in AIM listed companies that qualify for Business Relief (the government legislation that affords them IHT relief) can provide a welcome solution for clients. It is difficult to come up with a precise figure for the amount invested on AIM for this purpose but we estimate around £1,000 million. There are over 20 different providers offering AIM-based IHT solutions, which means clients have plenty of options to consider, but with so many providers offering access to a similar service how should investors decide between them?

Obviously, cost is an important consideration and it is essential to look at all the charges including any dealing and custodian fees that could be levied. However, I would suggest that looking for managers with a long track record of investing in and managing AIM portfolios should be the most significant consideration.

Does the manager have a robust investment philosophy?

How well resourced is the investment team and how

much experience in AIM investment do they have? How long have they managed AIM portfolios?

Although past performance is no guarantee of future performance, managers who have managed AIM portfolios over multiple market cycles should give greater confidence in their investment approach. A track record in managing tax advantaged portfolios is key, as the rules around tax-advantaged structures can be complicated. It is also important to be able to demonstrate an investment track record in AIM (either in a tax structure, or outside one) - it is pointless having an expert understanding of the legislation if the underlying investment does not perform. It needs to be clear from the Manager that this is an investment-led solution, not just a clever solution to a tax issue.

As a final thought for those considering tax advantaged products, there are several independent research sources which review providers and can provide due diligence such as; The Tax Shelter Report, The Tax Efficient Review and MiCap. Finally, as with many investments, diversifying across several providers can help to spread and reduce investment risk.

Although past performance is no guarantee of future performance, managers who have managed AIM portfolios over multiple market cycles should give greater confidence in their investment approach

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EIS Magazine · November 2016

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HOW TO FIND THE NEWEST EIS OPPORTUNITIES With record numbers of companies being formed, finding the next big thing can be difficult for advisers, but Shane Smith, Founder of Intelligent Crowd TV, believes he can help

The UK saw a record number of new company formations last year, just short of 600,000, and the most recent data for 2013/14 shows 2,000 companies receiving SEIS funding.

When we consider that investing usually or ideally requires a meeting, that represents a lot of investment opportunity, but also drives a lot of work – for both investors and entrepreneurs. Just a thousand companies meeting a thousand investors over the course of a year adds up to a million meetings. There has to be a better way.

Late last year, Intelligent Crowd TV launched The Seed & EIS Hour, a weekly one-hour chat show and pitching

format that gives founders a stage to explain their propositions (live-streamed), and gives investors a way to gauge the quality of the founding team and its proposition, quickly and efficiently. With support from Argus Research, the leader in pre-IPO research in New York City, and audience Q&A via Skype, the program is designed to be a 15 minute fast-track to getting under the skin of a deal.

Here we’ve selected three recent pitches which are currently open for investment, as well as Edukit which successfully seed-funded in our first series and is preparing to return for Series A funding:

FilmDoo Sector: Consumer staples FilmDoo is an online video-on-demand (VOD) platform focused on helping people to discover and watch great films, short films and other content from around the world. Unlike other VOD platforms, FilmDoo focuses on building a thriving film community and empowering users to drive social recommendations and to help bring a film to their region, a game changer and disrupting the way traditional film distribution currently works. FilmDoo makes it easier, fun and engaging for people to discover films they would otherwise not hear about while bringing greater transparency and data analytics to the film industry.

Rotor Videos Sector: IT Rotor is a new technology for making music videos online, in a matter of minutes. It is a cloud-based tool, so everything takes place in the Rotor website. All the user needs to do is sign up and follow three simple steps – load in their song, choose how they want their video to look with one of our style templates and choose which video clips to use. If the user doesn’t have their own clips, we have a stock library they can choose from (currently, 75% of our paying customers use only stock clips).

Rotor creates a preview of the video in about 3-5 minutes. If they like the preview, they can buy the high resolution version – starting at £5 and up to £25 for full HD. If they don’t like the preview, they can change the clips and style. Rotor is fast, inexpensive and simple to use. We have early traction with the consumer market and also with the B2B offering. We’re now entering our next phase of development.

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EIS Magazine · November 2016

Edukit Sector: IT/Ed-Tech EduKit is an online platform that connects schools with thousands of opportunities and programmes that can help children and young adults. Youth service providers spend over £350 million annually on ineffective marketing to schools. We will be the place where a significant proportion of this is spent. Given that schools receive £2 billion-plus annually specifically to support low-income pupils, EduKit helps schools to identify suitable programmes for pupils and to demonstrate to Ofsted, their governors and other stakeholders that these have achieved tangible results. We have strong traction with thousands of users at 78 schools and over 800 providers actively using our platform. We have also won awards from the Department of Education, UnLtd BVC and Sirius (UKTI).

How Intelligent Crowd TV works: We advocate a simple portfolio selection process, guided by these principles:

• Focus on SEIS, where your exposure to any individual company is typically limited to around 28p/£ • Focus on the team behind the company/idea • Understand the “big picture”, from an independent analyst • Recognise that one or two big “winners” will massively skew your portfolio return, but don’t try to find that single “winner” or the unicorn.

Rather, if the chances of a winner are one in 100, make sure you have 100 companies in your portfolio • Focus your effort on selecting these 100 from a curated pool, where the more obvious nonstarters have already been eliminated – and your time requirement is reduced • In your selection process, avoid the pressure of herd mentality For The Seed & EIS Hour every Monday evening, the aim is to apply these principles to make it a manageable onehour-a-week commitment, to building a highly diversified SEIS portfolio, with nil fees to erode net returns. Having watched and evaluated two or three entrepreneurs pitch their businesses, you’re invited to express interest online.

But – unlike the total investment slider-bar beloved of crowdfunding platforms to whip the herd into a stampede - these expressions of interest are not divulged until/unless the moment when their cumulative total reaches the pitch target. At that point, each member of the audience who expressed interest learns that enough of their peers formed the same view and therefore the pitch is likely to move to the next stage. Or, not.

Making SEIS easier We think the outcome offers an improvement on current prevailing investor behaviour which falls into three camps, typically:

• Investment into SEIS funds, which are characterised by significant fees and concentration of risk/limitation of reward through small portfolio size. Consider that even if the selection is basically sound, luck also plays a part in their eventual performance. So when you’re looking at the six or seven expensively-selected companies in your fund, ask yourself: do you feel lucky today, punk?

• Direct investment through equity crowdfunding platforms, where deal quality can be poor, valuations can be high, and the average SEIS portfolio is less than three holdings • Sink your £100,000 SEIS allowance into your brother-in-law’s business.

We think that the main constraint on SEIS investing generally (and the main driver of SEIS investing through funds) is that until now, it has simply been too hard for individual investors to find viable opportunities with only a modest time commitment.

And for the future, seed investing through equity crowdfunding platforms will depend totally upon efficiently connecting the best opportunities with investors who understand the benefits of building a diverse portfolio, rather than placing ad-hoc bets.

How to participate Series 4 of The Seed & EIS Hour will resume in January 2017 together with an additional format, The Series A Hour with Match Capital. We regularly host key figures from the industry, for example UK Business Angels Association’s Jenny Tooth OBE, and EISA’s outgoing Director General Sarah Wadham, as well as exceptional company founders.

Your client wants SEIS suggestions. You can’t advise. Now what?

We operate as an Angel Association, which is free of charge for members. Of course, there is the standard FCA registration requirement in order to access the free content (via any device). So while you can’t give advice to clients on particular deals, you can nevertheless provide guidance for where to look. Once registered, you’ll receive a weekly email with notes on the up-coming presentations for the week so that you can login, watch, ask questions – and move forward armed with insight and information.

November 2016 · www.eismagazine.com

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OPEN OFFERS Highlighting some of the key offerings currently available to IFAs

EIS

SEIS

VCT

SITR

IHT

BPR

EIS Open

Close

Now

Evergreen

Amount to be Raised: N/A Minimum Investment: £25,000

Seneca EIS Portfolio Service The Seneca EIS Portfolio Service is an evergreen discretionary management service that offers investors the opportunity to build a portfolio of equity investments in UK based SMEs, which are seeking an injection of capital to fund their next phase of growth.

The Service gives investors a portfolio of 4-6 investments per year diversified by sector. It targets investment returns of £1.60 to £1.80 per £1 invested (excluding tax reliefs). The EIS Service totals over £34m and has completed 45 investment rounds across 28 companies. 13 companies in the portfolio service are already AIM listed providing liquidity, market pricing and exit visibility for investors.

The Portfolio Manager, Seneca Partners, is part of the wider Seneca business, which has c. £450m invested assets and over £4bn debt under advice.

T. 020 7071 3926 E. seneca@lgbrtax.com www.lgbrcapital.com

EIS Open

Close

January 2014

Open-ended

Amount to be Raised: Unlimited

The knowledge, experience and pedigree of Seneca’s investment team, combined with their individual track records of successful investing in the SME sector, is complimented by an extensive deal flow network in the UK’s SME heartlands of northern England and the West Midlands.

PUMA INVESTMENTS - PUMA EIS The Puma EIS Service employs a proven investment strategy to offer exposure to asset-backed investments across a range of sectors. Puma EIS seeks to support the growth of UK SMEs whilst focussing on capital preservation. It seeks to deliver appropriate risk-adjusted returns together with the full range of EIS tax reliefs on 100% of funds subscribed to the Service (after deduction of Financial Adviser charges) depending on individual circumstances.

Successful deployment: Puma EIS has raised £40m+ to date. All funds raised have been successfully deployed in EIS Qualifying companies within the tax year of subscription to the service.

Closing dates: Puma EIS is an evergreen service but operates quarterly fund closes usually in April (just prior to the end of the tax year), July, October and January. Funds are allotted as soon as possible following these closes.

T. 020 7408 4070 E. info@pumainvestments.co.uk www.pumainvestments.co.uk

EIS Open

01/10/16

Close

04/04/17

Amount to be Raised: £500,000 Minimum Investment: £10,000

Realisations: It is envisaged that investments in Qualifying Companies will be realised within 3 to 5 years.

Investment Size: Minimum subscription is £15,000 with no upper limit.

VN Aerotoxic Detection Solutions Ltd - An EIS Raise with HMRC Advanced Assurance VN Aerotoxic Detection Solutions Ltd. (VN-ADS) is currently raising £500K via an HMRC Advanced Assured EIS. The money will fund the further development of a handheld aircraft cabin sensor technology that can detect Tricresyl-phosphate, (TCP, a poisonous organophosphate) onboard aircraft. This stage will design, manufacture, certify and support 100 prototype hand-held sensors for distribution and use by Cabin and Aircrew throughout the commercial aviation industry. The monetisation of this technology will be achieved through the sale of handheld sensors, and the licencing of an onboard detection solutions to aircraft manufacturers.

The cabin air of all commercial aircraft, except the recently introduced Boeing 787 is bled off the jet engines and is therefore susceptible to contamination from engine oil, some ingredients of which are known nuerotoxins, tricresyl phosphate being one.

T. 0207 096 1373 E.mgilmore@vn-cp.co.uk www.vn-cp.co.uk

The airline industry, including manufacturers and operators is under significant pressure as a result of increasing employee legal actions against them, and worldwide public enquiries into the deaths and illnesses being suffered by cabin and aircrew, following the discovery of the organophosphate TCP in aircraft cabins. To date, there is no real-time sensor or detection technology available, and airlines and operators are now losing or settling cases brought against them by their staff (for dangerous working conditions) outside the courts.

November 2016 · www.eismagazine.com

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EIS Open

Close

01/08/2013

N/A

Amount to be Raised: Uncapped

Deepbridge - Technology Growth EIS The Deepbridge Technology Growth EIS represents an opportunity for investors to participate in a portfolio of actively-managed growth-stage technology companies, taking advantage of the potential tax benefits available under the Enterprise Investment Scheme. The Deepbridge Technology Growth EIS is a diversified portfolio of actively managed high-growth companies seeking commercialisation funding. The Deepbridge EIS invests in companies that have a proven technology, clear intellectual property and are operating in a high growth/high value market sector.

Focused on investing in high growth companies that are seeking to commercialise and expand, specifically in three sectors: • Energy & resource innovation; • Medical technology • IT-based technology

T. 01244 746000 www.deepbridgecapital.com

The target return for the Deepbridge Technology Growth EIS 22.9% p.a. over a minimum of three years; representing mid-case capital growth of 160p returned for every 100p invested. To ensure maximum tax efficiency for the investor, the Deepbridge EIS is entirely investor-fee free at point of investment.

EIS Open

Close

21/09/2016

31/12/2016

Amount to be Raised: £560,000 Minimum Investment: £10,000

EIS Investment in forthcoming Martin Freeman & Maxine Peake Film ‘Funny Cow’ has already been acquired by Entertainment One, the distributor behind ‘12 Years a Slave’, ‘The BFG’ and ‘Spotlight’ guaranteeing wide distribution of this major UK comedy drama. As well as Freeman and Peake cast includes Stephen Graham (Boardwalk Empire), Vic Reeves and more.

EIS investors can expect a 20% premium on their investment return a high position in the recoupment ‘waterfall’ of incoming revenue and exclusive benefits such as set visits, red carpet premiere invites and screening.

Gizmo Films, a highly experienced film finance company led by private equity & EIS specialist Peter Dunphy, has selected ‘Funny Cow’ on behalf of its investors due to the strong return schedule, top name cast and guaranteed distribution.

Production takes place between November 2016 and May 2017.

Suitable for self certified sophisticated and HNW investors only. Gizmo Films works with HMRC approved SEIS and EIS firms only. Financial partner Brown McLeod & Legal Partner Lee & Thompson. Banking partner Barclays Bank.

T. 020 7233 7602 E. info@gizmofilms.com www.gizmofilms.com/funnycow

EIS Open

December 2015

Close

At Capacity

Amount to be Raised: £20m

TIME:EIS Shipping TIME:EIS Shipping invests in dry bulk shipping, offering investors an asset backed opportunity in a global industry that has been established for thousands of years. Shipping is a sector recently identified by the Government as vital to the UK economy and one it is keen to support.

Targeting a base case return of £1.27 for each net 70p invested, this noncontentious business model makes TIME:EIS Shipping an excellent fit within the EIS regulations – which is why advance assurance from HMRC has already been granted.

TIME:EIS Shipping has an initial capacity of £20 million, after having raised its full £5 million for its first tranche in the 2015/16 tax year, tranche 2 is now open for investment in the 2016/17 tax year. Alongside our specialist EIS team, support is provided by third parties with substantial experience in shipping.

Key information for TIME:EIS Shipping • Asset backed, with investment realisation expected within 4-5 years

T. 020 7391 4747 E. questions@time-investments.com www.time-investments.com

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EIS Magazine · November 2016

• Each vessel purchased without use of debt, thereby reducing the overall risk profile • Highly rated by independent researchers • Minimum investment £10,000

EIS

SEIS

Open

Close

Evergreen

Evergreen

Amount to be Raised: N/A Minimum Investment: £5,000

GrowthInvest - The Tax Efficient Platform for Advisers GrowthInvest is a unique, independent platform which provides access to tax efficient investments to a growing network of UK financial advisers, wealth managers and investors. Originally founded by financial advisers in 2012 as the Seed EIS Platform, we rebranded as GrowthInvest in October 2016 to better reflect the wider range of products and services available: • We permit investment into a range of single company offers, as well as Managed EIS Portfolio Services and funds, giving clients a number of different investment options.

• We offer a simplified asset transfer process which allows advisers to place all of their clients’ tax efficient investments onto the platform.

• We provide intuitive online reporting tools, allowing advisers to monitor, analyse, and provide consolidated performance updates and quarterly reports to their clients.

• All investable companies go through one of 3 defined due diligence tiers, giving added peace-of-mind to the adviser.

• A single, secure online environment for all clients to review and build their tax efficient investment portfolios.

T. 020 7071 3945 E. enquiries@growthinvest.com www.growthinvest.com

EIS

SEIS

Open

Close

August 2012

Evergreen

Amount to be Raised: N/A

We’ve placed the adviser at the heart of everything we do, making it straightforward for advisers to improve the service they offer to their clients in the tax efficient investment arena. Please visit us at growthinvest.com for more details about our current open investment opportunities.

Oxford Technology EIS/SEIS Fund Oxford Technology has specialised in investing in high risk/high potential return technology start-ups since 1983. OT(S)EIS is fund no 14, and remains open for investment at any time. Investors end up with a portfolio of SEIS and EIS investments after 36 months.

The SEIS scheme transforms the economics of investing in start-ups. The losses on those which fail are greatly reduced. The gains on those that succeed are tax free. They key to success is to take real risk and to make large gains on the successes.

To date we have made 24 investments and have had two failures (there will surely be more in due course). But the losses on the failures, after tax reliefs are only £12,300 and £21,000. So far we have had three successes (there will surely be more) and the net gains on these (only on paper so far) are >£3.2m after tax reliefs.

T. 01865 784466 E. lucius@oxfordtechnology.com www.oxfordtechnology.com

Our quarterly report, which gives a page of information on each of the investments may be downloaded from www.oxfordtechnology.com. Investors email to say how much they like this. Min investment £15,000. No initial fee. 3% introductory fee to IFAs. Man. fee 2% pa for 3 years, then 1.5% pa accrued. 0.35% pa custodian fee. 20% performance fee after hurdle achieved. Full details in IM, also downloadable.

November 2016 · www.eismagazine.com

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EIS

SEIS

Open

Close

October 2016

N/A

Amount to be Raised: £5m

T. 020 7873 2122 E. seis@jensonsolutions.com www.jensonfundingpartners.com

EIS

SEIS

Open

Close

14/11/2016

04/04/2017

Amount to be Raised: £10m Minimum Investment: £25,000

Jenson Funding Partners - SEIS & EIS Fund 4 We are pleased to follow-up our first three funds with a combined SEIS and EIS Fund (‘Fund 4’). Our offering allows investors to choose whether they want to invest solely via SEIS or EIS or to split their funds across SEIS and EIS investments.

The Fund aims to target exciting new innovative and disruptive technologies to be nurtured alongside existing investment opportunities that require follow-on investment to fully exploit commercialization of a proven business model. At Jenson we aim to offer these businesses far more than just funding. To date, we have actively advised entrepreneurs to re-evaluate business models, reduced projected costs and introduced potential executives, partners, customers and suppliers as part of the value added service we provide. Each investment is allocated an experienced Jenson finance director to the management team on a part-time basis to enhance returns, which is a key differentiation between ourselves and other SEIS and EIS providers. The combined SEIS and EIS structure is designed to provide increased diversification as a portfolio investment. We aim to maximise and balance between capital growth, portfolio risk and time horizon, whilst enhancing the tax advantages available.

Mercia Growth Fund 7 Mercia is a leading national investment group focused on building technology businesses from the UK regions. From seed through to exit, Mercia is in the compelling position of using a full range of capital - the ‘Complete Capital Solution’ - to build valuable businesses with truly global potential.

Mercia targets sectors in which its investment team holds deep expertise. It offers not only funding, but advice and support, to make sure that a business achieves its full potential. Its core sectors include: • Digital & Digital Entertainment • Software & the Internet • Life Sciences & Bio-sciences and • Electronics, Materials & Manufacturing / Engineering.

Mercia has 18 university partnerships across the Midlands, the North of England and Scotland, providing an enviable source of deal flow to its investment team.

T. 0330 223 1430 E. paul.mattick@merciatech.co.uk www.merciafund.co.uk

EIS

SEIS

Open

Close

06/04/15

Evergreen

Amount to be Raised: £10m Minimum Investment: £25,000

Mercia Growth Fund 7 is a tax-efficient SEIS/EIS hybrid fund that builds and supports largely pre-revenue businesses as part of Mercia’s Complete Capital Solution. As well as fees which are lower than the industry average, investors in Mercia’s funds also benefit from access to Mercia’s award-winning Investor Centre, which provides performance information and, in some cases, the option to sell shares.

Boundary Capital AngelPlus Fund Boundary Capital is a venture capital firm investing in UK based early stage technology and life science companies. It was established in 2009 by successful technology entrepreneurs and investors. The fund objective is lead and/or colead selective, early stage investments using a unique ‘Venturer’ approach which ensures all investments are nurtured actively. The fund only invests alongside ‘Venturers’ who are experienced entrepreneurs and executives (there are 300+ Venturers from a variety of technical fields and industries who are signed up to support Boundary Capital’s unique investment approach). These Venturers invest their own money and take an active board seat alongside Boundary Capital and its investment director in the investee company. This helps to promote success to de-risk them whilst adding value to the founders too. Further, there are no fees to pay by investors so 100% of their funds are invested.

The investment portfolios are co-managed by 5 Partners - Dan Somers, Dr Richard Leaver, Dr David Gee, Dr Adrian Parton and Grant Hawthorne. Ernie Richardson is strategic advisor working closely with the Partners.

T. 020 7060 3773 E. info@boundarycapital.com www.boundarycapital.com

32

EIS Magazine · November 2016

This experienced team have conceptualised, built, grown and realised technology businesses, led over 14 Venture Capital funds with over £200m in management and achieved 60 exits with fund multiples ranging from 1.4x to 3.0x

SEIS Open

Close

Now

Multiple

Amount to be Raised: £2.1m Minimum Investment: £10,000

Start-Up Series SEIS Fund One Invest in a portfolio of SEIS start-ups, selected through a series of competitions searching for the brightest entrepreneurs with the smartest ideas.

The Start-Up Series is a competition to search for great new consumer businesses - those creating products & services we buy and the ways that we buy them. The Series is promoted in partnership with startups.co.uk, the ‘goto’ place for advice for new businesses, with over 400,000 unique visitors each month. Worth Capital’s distillation and due diligence process aims to select 12 businesses over 12 months, to each qualify for up to £150,000 in SEIS funding, with a further £300,000 of the fund reserved for discretionary investments.

Amersham Investment Management have created the Start-Up Series SEIS Fund One to allow investors to invest in winning businesses.

• The Start-Up Series competition reach is designed to produce a high volume of businesses to consider • Sophisticated distillation methods to search among these for the brightest entrepreneurs with the smartest ideas • Continued expert oversight from an investor director appointed to each startup portfolio company

T. 0207 428 6006 E. info@worthcapital.uk www.worthcapital.uk

IHT Open

June 2013

Close

Open-ended

Amount to be Raised: Unlimited

• Multiple SEIS investments to create a tax efficient and diversified portfolio for qualifying investors

PUMA INVESTMENTS - PUMA HERITAGE Puma Heritage’s core focus is on secured lending. Its primary objectives are to preserve capital and mitigate risk.

Strategy: Conservative trading strategy focused on secured lending.

Flexibility: Choice of income or growth shares and ability to switch between them.

Experienced Adviser: Puma Heritage has appointed Puma Investments as its trading adviser.

Aligned Interests: The interests of Puma Investments (the trading adviser) and Shareholders are entirely aligned: Puma Investments will not receive any performance fees and its annual advisory fees are only paid in full if the minimum target annual return is paid in full.

Liquidity: Twice yearly opportunity to access capital (subject to terms set out in the Prospectus).

Subscription Amount: Minimum subscription of £25,000 with no maximum.

Inheritance Tax: It is intended that a subscription for shares in Puma Heritage will benefit from relief from Inheritance Tax provided the shares have been held for at least 2 years prior to and at the point of death and depending on individual circumstances.

T. 020 7408 4070 E. info@pumainvestments.co.uk www.pumainvestments.co.uk

This is an advertisement only. A copy of the Prospectus is available on Puma Investments’ website.

Investors should not subscribe for shares in Puma Heritage Plc except on the basis of information in the Prospectus.

November 2016 · www.eismagazine.com

33

IHT Open

October 2014

Close

Open-ended

Amount to be Raised: Unlimited

PUMA INVESTMENTS - PUMA AIM INHERITANCE TAX SERVICE Puma AIM Inheritance Tax Service is a discretionary service that seeks to mitigate Inheritance Tax by investing in a carefully selected portfolio of AIM shares. The Puma AIM Inheritance Tax Service is also available in ISAs. Portfolio Service: A discretionary portfolio service that seeks to deliver long term growth focusing on quality companies listed on AIM. Inheritance Tax: It is intended that investors will benefit from relief from Inheritance Tax provided investments are held for at least 2 years prior to and at the point of death and depending on individual circumstances.

Minimum subscription of £15,000 with no maximum.

T. 020 7408 4070 E. info@pumainvestments.co.uk www.pumainvestments.co.uk

BPR Open

Close

Evergreen

Evergreen

Amount to be Raised: Unlimited

Available in ISAs: Whilst ISAs can be extremely tax efficient during the holder’s lifetime, upon death ISA balances may be subject to a 40% IHT liability. Investing in a portfolio of qualifying AIM stocks gives holders the opportunity to mitigate Inheritance Tax while still retaining the benefits of an ISA. ISA Transfers can be accepted from existing providers as well as new investments.

TIME:Advance TIME:Advance is a discretionary management service that allows investors to access Business Property Relief (BPR) to mitigate their Inheritance Tax (IHT) liabilities. The service offers 100% IHT relief in just two years, alongside a targeted return of 3.5% per annum. Importantly clients retain access and control, so have the option to withdraw a lump sum or set up regular withdrawals in the form of an income.

The service focuses on capital preservation by investing in asset backed businesses with no debt which qualify for BPR. These businesses include secured lending, renewable energy, biomass and self-storage. The product is managed by an expert team, with a proven 20 year track record of 100% success in achieving BPR for investors.

T. 020 7391 4747 E. questions@time-investments.com www.time-investments.com

BPR Open

Evergreen

Close

Evergreen

Amount to be Raised: Unlimited

TIME: CTC (Corporate Trading Companies) TIME:CTC is a bespoke Inheritance Tax (IHT) solution for corporate investors, which boasts an impressive 20 year track record of delivering IHT relief for investors. TIME:CTC is aimed at business owners who have built up surplus cash in their business and could potentially lose Business Property Relief (BPR).

The focus of TIME:CTC is on capital preservation by investing in asset backed businesses which qualify for BPR. These businesses include secured lending, renewable energy, biomass and self-storage. Our strategy allows business owners to maintain control of their assets, avoiding the need for trusts or gifting to obtain relief.

T. 020 7391 4747 E. questions@time-investments.com www.time-investments.com

34

EIS Magazine · November 2016

Targeting a return of 3.5% and potentially immediate reinstatement of BPR qualifying assets. To date more than 500 of our clients have already achieved BPR on their investments, a 100% success rate.

November 2016 ¡ www.eismagazine.com

35

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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 R E A SPECIA L I ST F I NANC IAL S A L E S , CO N S U LTA N CY A N D BR O KE R AGE B US I N ES S .

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