PIMFA JOURNAL 2018 Spring

JOURNAL

SPRING 2018

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Contents

2018

Key Takeaways From PIMFA’s Millennial Report...............................6-9 6 Ways to Prepare For GDPR Over The Next 6 Months....................10-13 Overview......................................................................................14-17 5 SMCR “To do” List Items To Get Firms Started................................18 Robo-Advice..................................................................................19-23 A Stock Picker’s Approach to Managing The Macro..........................24-27 GDPR already influencing insurance buying.............................32-35 PIMFA Events Calendar......................................................................36 Hacker Girl...................................................................................37-41 Become a Member..........................................................................42-43

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Personal Investment Management Finance Advisors Association

Foreword 2018 has undoubtedly started with a bang for our industry following all the preparation in 2017 for the avalanche of new regulation that finally went live in early January this year. These bring with them a mass of new questions and debate as to how our industry achieves adoption and compliance.

As the leading trade body for our sector, PIMFA is ready to help our members with support and guidance on key issues such as Market in Financial Instrument Directive (MiFID II), Packaged Retail and Insurance-based Investment Products (PRIIPs), Senior Managers Certification Regime (SMCR) and the upcoming General Data Protection Regulation (GDPR) launch in May. We constantly update our guidance and support material - now available to all our members via our new and immensely upgraded website - confirming our mission to support our members through the complexities of these new regulations as they become apparent.

Alongside this we also run events and our first major event of 2018, the Financial Crime Conference, left a sell-out crowd feeling enlightened, well informed and better prepared for the future. Next up in our events calendar (see page 36) will be the Women in Wealth networking event, very quickly filling up, on 8th March coinciding with International Women’s Day – and the GDPR Conference on 22nd March, which is on course to sell out completely.

In addition, we will be finalising our Member’s Manifesto on the key commitments and calls for action from Government, Regulators and other stakeholders.

Along with continued lobbying on pension freedoms and preparation for the launch of GDPR in May, we are following the FCA’s implementation of the Insurance Distribution Directive (IDD), due to come into force by October 2018. PIMFA has developed a Guide to the IDD, which sets out the 4

changes affecting firms involved in the insurance supply chain, so that they can adequately prepare and have the necessary arrangements in place to comply with their new obligations.

After the success of its predecessors, we will soon be commencing our third Millennial Forum, where talented Millennials from the sector work with us to tackle the puzzle of attraction and engagement with future clients.

As the countdown continues towards Brexit, PIMFA remains at the forefront on dialogue on the needs of our sector and committed to helping minimise disruption, maximise members’ understanding of the implications so that they can effectively prepare, and helping to identify potential new opportunities as they arise.

All of this is made possible by the close interaction with and input from our members. Today we run over 30 committees, working parties and forums generating a close, ongoing dialogue. Alongside this we also greatly welcome hearing from our members at any point in the year with their key concerns so we can offer assistance.

We look forward to a busy and fulfilling 2018!

Liz Field, Chief Executive PIMFA- Personal Investment Management & Financial Advice Association

Our Mission Our mission is to create an optimal operating environment so that our member firms can focus on delivering the best service to clients, providing responsible stewardship for their long-term savings and investments.

What We Do Represent the diverse range of firms in the investment and financial advice industry with a unified voice Be the undisputed industry thought leader, consolidating our extensive technical insights and expertise in research and policy work Lead the debate on policy and regulatory recommendations to ensure an optimal operating environment for firms and clients, maintaining the UK’s position as a leading global centre of excellence Through our advocacy work, we promote the industry as a key catalyst to develop a culture of savings and investment in the UK Promote a greater understanding of the sector and its role as a beneficial force in transforming the way people save and invest for the future Facilitate dialogue across industry stakeholders, whilst developing best-practice guidance

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KEY TAKEAWAYS FROM PIMFA’S MILLENNIAL REPORT IN 2016, PIMFA – the UK’s leading Trade Association for Personal Investment Management and Financial Advice – launched its first Millennial Report, as a piece of thought leadership delving into how our industry can engage with Millennials as a future generation of clients.

Following on from its success and the many ideas and potential solutions it spawned, we decided to run the forum again in 2017, looking into ideas around intergenerational wealth, costs and barriers, promotion of the industry and the impacts of technology on this demographic. A wealth of new information resulted, providing more insight along with some signposts as to the way ahead.

Comparative with older generations, Millennials face massive financial hurdles, including high property prices, DC pension contributions as a proportion of income, high cost of living and the strong likelihood that their putative inheritance will be delayed, possibly until their sixties, due to baby-boomers living longer. Many will lose out in the inheritance game altogether as parents’ property/savings are expended early due to care costs.

Drilling deeper, it transpired that Millennials are digitally savvy and expect clarity on fees and product detail.

Reasonable fees – low at entry level – and appropriate product design came up repeatedly, including those which would help Millennials buy a house, for example;

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Millennials’ Financial Priorities

Retirement Provision 10%

Regular Savings 20%

Investment 11% Millennials Protection 7% Mortgage 25%

Debt Management 7%

As a surprise to some, ethical considerations were ranked low compared with performance, costs etc. The suggestion is also that the industry needs to look at reducing its minimum investment amounts;

How millennials ranked the following in terms of importance with regards to investment:

1

2

3

4

5

Performace

Fees

Tax Efficiency

Flexibility

Ethical/Social Impact

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In terms of data retention – a sizeable issue with GDPR on the immediate horizon – they don’t mind direct marketing as long as it is relevant and pertinent to their lives and lifestyles and, for entry level decisions at least, digital and/or robo-advice may well be appropriate: however, for the bigger decisions coming later in the cycle, Millennials appear to favour face-to-face; Level of comfort with firms using customer data for certain uses Yes

No

Profile your behavior

Provide a more bespoke service

Passing details to accountants or lawyers Passing details to advertisers 0

20

40

60

80

100

Post Crisis (2007/8), the industry as a whole still has a bad name with many Millennials and large firms and overt corporate branding were seen as negative by some, affecting how many of them would choose to seek and receive advice; What types of firms make Millennials feel safe about holding and using their data?

A firm where you have a personal relationship Online only

Combination

No preference 0

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40

60

80

100

Who of the following are you most likely to seek guidance from in relation to your wealth?

30% 25% 20% 15% 10% 5% 0% An individual at a small Wealth Management Firm

An individual at a large Wealth Management Firm

A family member

A friend

Other (please specify)

If you were seeking access to Wealth/investment Management, how would you ideally like to access it?

50% 40% 30% 20% 10% 0%

Regular face to face meeting with industry professional

One off Face to face meeting with industry professional

Online with option of face to face if desired

Online only platform

App based platform

Annual bespoke comment on your portfolio

Education was seen as attractive and appropriate for younger generations Subsequently, it appeared that the credit crunch and a culture of low interest rates has left Millennials with a misconception of what the historically “normal” world actually looks like, suggesting that there are shocks in store.

Consequently, it was recognised that the wealth management industry will have to forge relationships differently, one way being by approaching them through the existing relationships with elder family members.

After these thought-provoking and informative results PIMFA, recognising that there are gaps in the research, will be continuing this strand with the Millennial Report 2018, dealing with issues such as Millennials’ views on socially responsible investment, whether the sector can do more to engage Millennials with products and services which meet their lifetime goals, human vs digital engagement and how to make the delivery of education and better information cost-effective.

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6 Ways to Prepare For GDPR Over The Next 6 Months In May 2018, the new General Data Protection Regulations (GDPR) come into force, and there has been much scaremongering about the effect this will have on businesses in the financial, investment and asset management industry, and in particular about what they need to do to get their house in order.

With a proven track record of providing communication solutions for the wealth and asset management sector, Paragon Customer Communications have developed this guide for PIMFA members, highlighting 6 ways in which businesses should be pro-actively building robust relationships with their clients and prospects, while ensuring they do not fall foul of the incoming GDPR legislation. Those that are proactive will be in a position to reap the rewards as they build relationships and trust with their customers.

1. Check where your data is stored The modifications to the regulations are the biggest changes to data privacy legislation in years, and it is fundamentally important that businesses can answer the following questions about their data storage:

Is it secure?

How long are you keeping it for, and why?

Are you passing data to any third parties, and if so, are they also secure?

Sensitive financial information is of great value to cybercriminals looking to exploit weaknesses in a company’s data security, and the reputational damage could be catastrophic to a business if a preventable data breach occurs. This is equally important for any third parties with whom you share customer data.

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2. How clean is your data?

Maintaining the quality and compliance of your investors’ contact data requires a company-wide approach to ensure you don’t fall foul of the GDPR regulations. Have investors changed address? Are you holding data for individuals who are no longer invested? If you want to use your data for marketing purposes, you need to make sure it is re-permissioned.

Re-permissioning is the process of gaining a customer’s consent for businesses to communicate marketing messages to them. The methods by which businesses gained consent, such as via pre-ticked boxes on a web form, will now fall foul of the regulations.

Further, if a business obtained consent sometime in the past and doesn’t have proper records of this in place, they will need to contact parts or even all of their customer database to secure the right permissions.

3. Make sure you are using the right channels to communicate Customer communications is a rapidly evolving environment, with new channels and technologies emerging all the time. However, print is making a resurgence as a valued medium. In an increasingly busy digital world, print communication is viewed as a more valued and considered method by customers. On top of this, open and retention rates tend to be higher for print than with digital media.

It is worth considering the many ways in which you can communicate with your customers, and the preferences they may have. Have you ever asked your investors how they want to be communicated with? You shouldn’t employ a ‘one size fits all’ policy and assume the way you are talking to your investors is the way they want to receive communications from you. It may be that your investors want to receive different communications via different channels, but you won’t know for sure unless you ask them.

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4. Discover when investors want to recieve communications from you.

It may not be when you would think.

The Royal Bank of Scotland has determined that over half of their fifteen million customers are now using online banking. As such, in 2014 they discovered that their busiest branch wasn’t a branch at all – it was the 7.01 train from Reading to Paddington [1], with over 167,000 customers logging on to their online banking app between 7am and 8am on their commute to work every day.

With continuously increasing demands on people’s free time, and attention spans getting shorter, busy people are often using their weekends to catch up on their emails. We’ve all swiped an email off our phone screens to read at a later date and then forgotten about it, so you may wish to plan the release of digital communications so they land at a time when they are most likely to be read.

To this end, you can go one step further and use artificial intelligence in your communication planning to ensure you send the right message at the right time. At Paragon we use tools such as IBM Watson, which can create complete customer journeys and ensure that they receive a chain of communication based on their online activity, delivered at the right time, via the correct channels.

5. Think about how you are using data Businesses should undertake an impact assessment on anything they have concerns about regarding the GDPR deadline. If the Information Commissioner’s Office asked you to explain why you did what you did with an investor’s data, would you be able to defend your position? Are you using the data you hold only to deliver relevant information and communications to investors and potential customers?

Once your business has identified areas that could cause compliance problems and recorded them on a risk register, you’ll be in a better position to move forward without fear of reprisals.

The GDPR puts a stronger emphasis on the documentation which data controllers must retain to demonstrate their accountability. Some aspects of the GDPR will impact one organisation more than another, depending on the sector and customer base, so it would be a good idea to plan for which parts of the regulations will have the largest impact on your business and give those aspects greater prominence in your planning process.

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6. Prepare for the worst We all work in a very regulated environment, yet every week there seems to be another news story about damaging data breaches taking place. With more people than ever using social media, news stories can be shared across the globe within minutes, and the reputational damage a business suffers can be enormous.

If the worst does happen, one of the main ways in which a business can limit the impact on its standing and reputation is to communicate quickly and effectively with its customers.

This can help to limit the damage, and serves to reassure customers that you have identified the problem and are taking steps to fix it.

Paragon offers a range of solutions both for small businesses and large corporations to allow them to plan for the worst. If a company’s data has been compromised, we can help them to react accordingly using a wide range of media. Typically, this involves setting up templates that can be quickly updated with appropriate messaging, and employing processes which promptly ingest data and distribute communications across a range of channels. Implementing these processes ensures messaging is both sent and received in a very tight timeline.

Gary O’Brien, Paragon, www.paragon-europe.com/en-gb

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OVERVIEW The concept of SM&CR was borne out of the PCBS report and in March 2016 for Banks, Building Societies, Credit Unions and Designated Investment Firms it came into being. Insurers were also captured but from the slightly earlier date of January 2016 with a personalised version of the regime in SIMR.

able to demonstrate not only who is responsible for what but that these responsibilities come together in a cohesive and effective governance and risk framework.

As a business, Worksmart have spent the last 2 years working with the Banking sector on the SM&CR regime, and having multiple These regimes developed by both the PRA implementations under our belt, has allowed from a prudential perspective and by the FCA us to benefit from the experiences the banking from a conduct one have now been in existence section have gone through. from approximately 18 months.

In this first phase of implementation over 1000 firms were caught, however when SM&CR is implemented within the wider market it will affect over 50,000 firms.

If we think that the existing regime for Senior Managers and other defined Controlled Function holders has been in existence since 2001, it is clear to see that following the banking crisis, it was felt that now was the time for an overhaul.

“We see personal accountability as fundamental to the future of financial services” Megan Butler – Executive Director of Supervision FCA

The regime from inception has been intended to ensure that the right senior managers within a regulated business are held accountable for their areas of responsibility. Firms must be

Key Components of The New Regime The extension of SM&CR to all regulated firms will require firms to consider three areas;

The Senior Managers Regime

The Certification Regime

Tier 1 & Tier 2 Conduct Rules

Like the banking and insurance sectors, the introduction of SM&CR brings the greatest overhaul in the arrangements for Approved Persons in many years.

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In addition, the FCA have effectively “handed back” responsibility for the Fitness & Propriety of many individuals who would previously have been an Approved Person in a conduct focused function back to firms. This has been done by changes to FSMA which lays down in legislation that all firms must have a “Certification Regime.” This puts the onus on the firm and not the FCA to decide whether the individual is fit for the role they are being employed to fulfil.

The table provided by the FCA provides a high level overview of the component parts of the new regime. It demonstrates the proportionate nature of the application of the new regime together with what Conduct Rules apply to whom.

Summary Diagram - The Senior Managers & Certification Regime Senior Managers Regime Senior Manager Conduct Rules

The most senior people in firms. Anyone who performs a Senior Management Function needs to be approved by us.

Core requirements:

Senior Management Functions

Duty of Responsibility

Criminal Records Checks

Statement of Responsibilities

Prescribed Responsibilities (Limited Scope Firms don’t need to do this)

Extra requirements that only enhanced firms need to meet:

Individual Conduct Rules

Additional Senior Management Functions

Additional Prescribed Responsibilities

Responsibilities Maps

Handover Procedures

Fit and Proper Requirements (including Regulatory References)

Overall Responsibility

Certification Regime People who aren’t Senior Managers but whose job can cause significant harm to the firm or its customers. We don’t approve these people, but firms need to check and confirm that these people are suitable to do their job at least once a year.

Other Staff All staff who perform finanical services roles. This does not include ancillary staff (for example; caterers, cleaners, and security staff).

Proportionality within the new rules As in banking, the FCA is proposing a proportionate approach to the Senior Managers Regime, with the simplest and/or smallest firms having the lightest set of requirements to comply with. The majority of firms will fit into what will be known as the Core Regime, meaning that they will receive a lesser element of change than those firms that will fall into the Enhanced Regime.

The largest firms falling under the Enhanced Regime will have the most stringent requirements assigned to them. It is estimated by the FCA that across all sectors of Financial Services there will be approximately 350 firms that fall into this category. There is a set of criteria that the FCA are currently consulting on that define whether a firm is captured under the Enhanced Regime* or whether the lesser requirement under the Core Regime will apply. *See CP17/25 Ch2 Page 10 for full qualifying criteria

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Senior Managers Regime

Certification Regime

For firms falling under the Core and Enhanced Regimes, there will be a requirement to allocate pre-defined regulatory “Prescribed Responsibilities” to relevant Senior Manager(s).

Regardless of whether a Senior Manager has been allocated any Prescribed Responsibilities or not, they will each have to sign up to a “Statement of Responsibilities” under the new regime. This statement is intended to be a useful document that clearly sets out what the individual is responsible for. It is expected to be used by the FCA in supervision of the firm and the individual and as such must be accurate and up to date at all times.

The Certification Regime is a new introduction that will see firm’s take responsibility for individuals that fall into certain role classifications.

These will be known as Significant Harm Functions. Currently the FCA have proposed that there will be 8 categories and that any individual falling into these will have to be “Certificated” on an annual basis by their firm in order to continue to undertake their job role.

As is currently the case, senior managers will still need to be “pre-approved” by the FCA in order to carry out their role under the new regime. Part of that application for approval will be made up by confirming the Prescribed Responsibilities the senior manager has assigned to them in their Statement of Responsibility.

The Certification process used will be for the firm to decide, but in order to Certificate any individual a firm must undertake an appropriate assessment as to whether they remain competent for the role that they undertake.

The assessment will also need to include an annual assessment of the individuals Fitness and Propriety. So for those firms that are used to applying for regulatory approval for their CF 30 population, this will no longer be required, it will be the firm’s responsibility to undertake both the initial and ongoing annual assessment for individuals in these role types.

Preparing for the new regime It is often said that “Preparation is the key to Success” and in our experience, this is exactly the case with SM&CR. The implementation of SM&CR whilst proportionate to the size of the organisation, still has many component (and moving) parts and it is our experience here at Worksmart that the earlier a business becomes engaged with the requirements of this new regime, then the more successful the project is likely to be.

With a “technical” paper planned for delivery to the industry in Dec 17, the FCA has estimated that the policy statement for SM&CR will be with us by the summer of 2018. This gives firms

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“The Senior Manager’s Regime, I think, marks a distinct and positive turning point” Mark Steward – Director of Enforcement & Market Oversight FCA

“FMSA requires firms to not only make individuals aware that they are subject to the Conduct Rules, but also to train them in how the rules might apply to them”

Tier 1 & Tier 2 Conduct Rules Under SM&CR, the FCA are introducing Conduct Rules for the majority of staff within financial services, thus expanding their regulatory perimeter and oversight of individuals. As currently under APER, Senior Managers will have both individual and management Conduct Rules with which to adhere to whilst, the majority of other staff within firms will now have to adhere to the Tier 1 Conduct Rules. Whilst your existing CF 30 populations will be used to being caught by the Code of Conduct for Approved Persons, your wider populations will not, and as such they will need support and training to help them understand the implications of how the new rules will apply to them.

CP 17/25

time to consider how they will approach what is arguably the biggest changes to Approved Persons since the inception of the FSA back in 2001.

Whilst it would be easy to sit back and say “we will start preparing when we have a deadline and when we know what the rules are”, what we do know is that many of the constituent parts of SM&CR are laid down in legislation, so it’s best not to rely on too many changes being made to the final rules through the consultation process!

From our experience of handling doubt digit banking implementations for SM&CR, here are some suggestions for actions that firms can be taking now in readiness for when the final rules are received from the FCA together with the implementation dates from HM Treasury.

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5 SMCR “TO DO” LIST ITEMS TO GET FIRMS STARTED

Review your current Training & Competence arrangements to ensure that they are robust enough to support the “Certification” of those that require it

For those that will be subject to “Certification” but do not fall under any required T & C arrangements, consider your Performance Appraisal process and whether any development is needed to support the required competence assessments

SM&CR is all about improving governance within firms and so a review of corporate structures, and who is accountable for what will pave the way for implementation in due course

Senior Managers will each need a Statement of Responsibility that will be a regulatory document detailing what they are accountable for. This will impact any Job Description that is held for each Senior Manager so an early review and an early update of employees Job Descriptions is a good place to start

Implementing an internal Certification Regime and applying Conduct Rules to many individuals that they have not been applied to before will bring contractual changes to terms of employment. Dust off those employment contracts and engage your HR Teams in considering what changes (if any) are needed

Julie Pardy, Director of Regulation & Market Engagement, Worksmart Limited, www.worksmart.co.uk

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WHAT IS THE REGULATOR LOOKING FOR ‘UNDER THE BONNET’ OF ROBO-ADVICE? Against a backdrop of robust economic With the number of firms willing to invest in the development of robo-advice propositions increasing, new guidance papers published by the FCA during 2017 have been welcomed by many.

Much of the guidance is informed by the FCA’s work with their Advice Unit and, as a result, the regulatory expectations for robo-advice are much clearer, which should give firms increased confidence in either entering this market or expanding their offering. However, there are still operational and technological challenges to ensuring their automated processes are aligned with regulatory requirements.

As a result of the Financial Services Market Review (FAMR) in 2015, the FCA has largely taken a supportive role in the development of new technologies which can deliver cost-effective advice in order to fill the advice gap. However, recently, there are signs that the regulator now wants to be a little more intrusive and take a closer look under the bonnet of firms’ robo-advice processes.

What areas is the FCA likely to focus on and, importantly, how can firms ensure that their proposition is fit for purpose?

INCREASING REGULATORY FOCUS The FCA is concerned that should robo-advice processes be poorly designed it could lead to systemic mis-selling. Bob Ferguson, Department Head at the FCA’s Strategy and Competition Division, recently expressed this point at the Westminster and City annual conference on robo-advice.

The FCA’s Business Plan for 2017/2018, which was published earlier this year, stated that the FCA will monitor the development of robo-advice and it will be the focus of thematic work starting from quarter two of 2018.

Although the FCA is willing to support the development of robo-advice, firms need to make sure that the automated advice process is well designed and fit for purpose.

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WHERE THE REGULATOR’S SCRUTINY WILL BE FOCUSED Firms need to be prepared for a more intrusive investigation into their advice processes, but what should they expect the regulator to scrutinise?

Areas of focus are likely to include:

• The target market and distribution strategy, and whether it has been • Whether the

defined, robustly researched and

process is aligned with new regulation, such as Markets in Financial

is supported by evidence to ensure it is being offered to the right clients

Instruments Directive (MiFID II) and the Insurance Distribution Directive (IDD)

• For a non-advised service, whether the presentation of information meets the needs of the target market and avoids straying into regulated advice

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• Whether the customer journey gives clear information that defines the service and who it is suitable for • How the service ensures any product arranged remains • Whether the system is capable of filtering

suitable for the client on an ongoing basis Directive (IDD)

out those potential clients for whom the service is not suitable

• How the firm manages and discloses any conflicts of interest

• The onboarding process, and whether it captures the right amount and level of information

• Whether advice meets the definition of a personal recommendation

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Covering the above areas should be relatively comfortable for firms that have prepared well.

However, the more challenging questions are those that involve ‘looking under the bonnet’ and focus on the internal operations of the advice model, such as:

What controls are there over the accuracy and reliability of client information?

How do the algorithms map directly to good client outcomes?

What level of outcome testing has been carried out pre-launch and how is this monitored on an ongoing basis?

What controls are in place to identify and handle inconsistencies in client information?

Is risk profiling fit for purpose?

WHAT IS THE POTENTIAL FOR SYSTEMIC MIS-SELLING? A robo-advice process would contain broadly similar elements of the client journey to face-toface advice, but there is a key difference which can increase the risk of systemic mis-selling.

In face-to-face advice, the nature of human decision-making means there can be a variance in outcomes arising from a client relationship with an adviser. However, this should still result in suitable outcomes in most cases due to the skill and experience of the adviser.

For robo-advice, the model is likely to be less variable, and there is a greater ‘fixed’ nature to the outcomes. Here, the complexity of the algorithm plays a part.

The key challenge is; if there is a flaw in the design process which produces a poor outcome, the ‘fixed’ nature of the system can magnify the number of poor outcomes.

Some robo-advice models include part-human, part-automated advice, which is likely to reduce the risk of this ‘fixed’ nature. For advice models with no human involvement, the risk of systemic mis-selling due to a single flaw in the process is much greater.

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GAINING SUFFICIENT COMFORT THAT YOUR SYSTEM IS FIT FOR PURPOSE Having covered various elements of robo-advice during his speech, Bob Ferguson finished by asserting that the real focus is ultimately, and invariably, customer outcomes:

Thinking about the risks prompts a question about how the FCA will supervise robo-advice models and their algorithms. The answer is that we are focused on outcomes. That is to say, it is above all about what the model generates.

Whether the robo-advice model is well designed can be established through effective outcomes testing. Firms should ensure that they are testing sufficient volumes of customer outcomes, and that enough diversity (in terms of the variety of customer circumstances) exists within samples, both prior to launch and on an ongoing basis.

Outcome testing is not just about running scenarios to see if the algorithms produce suitable advice; it should also include other aspects, for example, testing customers’ understanding and testing the technology’s tolerances based on the widest possible variations in client answers.

Firms should also consider the factors which influence how much testing they should carry out.

Models which are fully automated may need more testing than those with some human involvement.

The greater the number of inputs for the algorithm, the more possible scenarios and the greater the complexity.

ACT EARLY TO CAPTURE ISSUES If outcomes are the sole marker for success, and the risk of driving detriment into the customer base within robo-advice propositions is increased, then firms have an imperative to ‘check the oil’ more regularly for their own, and their customers’, benefit.

The key commercial advantage of robo-advice is the efficiency with which it can provide advice.

However, in order to gain in the long term, firms must ensure they are investing sufficient time and money into the prevention of poor outcomes and balancing commercial advantages with customers’ needs in order to futureproof their approach.

Matthew Speck, Senior Consultant at Huntswood, www.huntswood.com

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A Stock Picker’s Approach to Managing The Macro As an investor in a global stock market such as the UK’s FTSE All-Share Index, I am acutely interested in the various aspects of the macroeconomic environment. In an increasingly globalised market, interest rates, economic trends and politics interweave and interact to influence on markets.

My interest in these macro drivers is academic to an extent: as a stock picker I am ultimately interested in the financial performance of the companies I own and how that will shape their path to sustainable dividend growth. While the economic cycle can make a difference to the smoothness of that path, it does not have to be the defining factor to performance over the long term, particularly for medium-sized companies or niche players who can grow organically by winning market share, sometimes capitalising on the ups and downs of the economic cycle along the way.

However, I feel we have reached inflection points across a number of global macro and political fronts; high valuations in certain sectors, shifting monetary policy and geopolitical volatility have the potential to recalibrate the status quo across a number of sectors.

While stock markets have enjoyed a pretty smooth ride since the 2012 Eurozone crisis,

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the macro risk now seems to me to be very much to the downside, with the exception of the perceived Brexit risk to the UK economy.

Brexit – creating valuation anomalies to be exploited The significant underperformance of sterlingbased investments (Figure 1) and the sharp decline in the currency supports a view that Brexit is an accident waiting to happen for the UK economy.

This bearish view is not my central scenario.

Brexit brings with it all the uncertainties that politics can throw up, but I believe it is highly unlikely that the negotiating process will end in stalemate. Even now, at the height of the uncertainty, the UK economy is performing robustly.

Indeed, the short-term price for the Brexit vote has almost been paid in full, in that the spike in inflation that eroded real consumer spending power has played out and is about to reverse.

A key risk now to investors in the UK stock market is a material recovery in sterling and a violent rotation away from the international earnings that dominate the FTSE 100 index, into domestic-facing companies currently trading on recession-type valuations. Sterling assets are now undervalued on a risk-adjusted basis and I have increased investments in domestic companies in my portfolios.

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Figure 1: Domestic stocks have underperformed exporters dramatically

Source: Morgan Stanley as at 11 October 2017. Bespoke baskets of UK-listed companies composed by Morgan Stanley.

Monetary tightening – now underway The ‘normalisation’ of monetary policy and the return to positive real interest rates looks set to gather pace. This has implications for valuations in many parts of the market, which I think have been inflated by the consequences of super low interest rates.

Although there are structural causes of low price and wage inflation, I now feel that bond markets could sell off even within that paradigm.

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A re-run of the post 2008 QE policies would not be welcomed by those voters who associate it with growing wealth inequalities.

I do not find it bullish that the US Federal Reserve is openly declaring itself perplexed over the relationship between unemployment, wages and prices. The Bank of England is being similarly coy about committing itself to further rate rises whilst Brexit uncertainty persists. What we can say is that 10-year bond yields at or below the rate of inflation worldwide in these economies are probably unsustainable unless we are heading for an economic downturn.

Politics – another destabilising influence Politics in most key democracies cannot survive another recession without a total re-think of fiscal policy and how to protect the interests and income of the labour market.

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In aggregate, the rising prominence of intergenerational issues – including elevated house prices, the exponential rise in social security and pension liabilities – and the force of populism have brought key Western governments to an inflection point. These issues are set to influence policy makers and will be critical to the Conservative government over the course of this parliament.

Equity valuations - currently elevated Against a backdrop of robust economic growth, monetary tightening in the US may not be a major problem for equities if earnings keep rising cyclically. Too many segments of this market have been boosted by the long-term growth agenda (large cap tech) and the significant level of share buybacks, however, to the extent that US corporates are now the only marginal buyers of equities. Technically, the US market now feels vulnerable to a de-rating.

Another key driver of equity markets has been the recovery in commodity prices. This has been coupled with renewed confidence that the Chinese drive for more balanced growth can be achieved.

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The drive by the Xi presidency to cut back on inefficient metals production for environmental reasons raises the question of whether steel production in 2017 will continue to push higher.

Housing and infrastructure are giving way to services, technology and electrification as the drivers of economic growth, an overall headwind for metals prices.

Outlook – global risks elevated, but the UK market offers stock picking opportunities.

The performance of the UK stock market continues to be dominated by the countervailing forces of better than expected global economic growth and ongoing UK domestic political concerns. A sense of complacency may now exist over the global growth outlook. A combination of high valuations in certain sectors, shifting monetary policy and a volatile geopolitical environment may provide a catalyst which alters this bullish global outlook.

By contrast, the market seems unwilling to look beyond the uncertainty of the Brexit negotiations when it comes to valuing sterling assets which, by historic standards, are now heavily discounted. Again, this seems unlikely to persist for long.

By proceeding cautiously, employing a welltested investment process based on fundamental company analysis and a prudent approach to valuation, there are opportunities for profitable investment in companies with the potential to deliver a sustainable flow of dividend income in the event of more volatile market conditions.

Investment risks The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

Past performance is not a guide to future returns.

Mark Barnett, Head of UK Equities, Invesco Perpetual, www.invescoperpetual.co.uk/uk

Important information This document is for Professional Clients only and is not for consumer use.

All information is at 24 November 2017, unless otherwise stated.

Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice.

This document is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.

Invesco Perpetual is a business name of Invesco Asset Management Limited, Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UK. Authorised and regulated by the Financial Conduct Authority.

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Most Frequently Asked Questions About Personal Brand And Responses Research shows that others judge us within 30 seconds of meeting. What would they say about you or your people? As a Personal Brand and Impact Consultant, I was invited to give a talk on personal brand at the recent PIMFA ‘Women in Wealth’ networking event. It’s a big subject, so to explore how to identify your personal brand, start by considering my six most frequently asked questions and their answers:

What is personal brand?

Put simply, personal brand is about packaging ‘you’ – your unique skills, your talents, values and beliefs. Personal brand is also about the messages that you want to convey in any given situation – how you want to come across, and how you want to be perceived.

We think we present ourselves in a certain way, but sometimes what others actually see and experience can be completely different. I love this quote from Jeff Bezos, Founder & CEO of Amazon:

‘Your brand is what people say about you when you are not in the room’.

When I work with an individual to create or enhance their personal brand, I ask them to think about their core messages and what key words they would like people to use when talking about them: ‘professional’, ‘approachable’, ‘friendly’? I then ask them to reflect and critique how their behaviour and image supports these messages.

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How can I stand out from the crowd?

Firstly, it’s important to think about whether you want to stand out from the crowd and whether you are ready for it! You’ll gain more visibility and more attention and you need to be confident that this is what you want.

Being comfortable in your own skin, being authentic and being yourself can make you memorable for the right reasons.

Decide upon your personal unique selling points (USPs) and make sure that your image speaks to this. Ensure that everyone you meet can clearly see your USP through your image and brand.

How important is an online presence?

It’s important to have an appropriate online presence – it’s one of the best ways of promoting yourself and connecting with others. The last election was a good example: The Labour Party wanted to connect with the younger generation and knew that they simply didn’t read traditional newspapers. They created a digital campaign using the media most relevant to them, creating content that spoke to them in their language. The results were evident.

Within business it’s generally expected that you have a LinkedIn profile. However, remember to keep it current, including your photograph. And take ownership of who you decide to connect with. Are they congruent with your brand? Do you share the same values and beliefs? Will they add value? It may be beneficial to add a personal brand statement within your summary on your LinkedIn profile so that others will gain a sense of who you are and how you operate.

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How do I create a personal brand statement?

A personal brand statement comprises: • • •

Your value proposition, i.e. what you bring to the table Your audience Your uniqueness (USPs)

As an example, this is my statement:

I am driven by my values and beliefs, so it’s important for me to provide and gain trust and respect to create a professional environment when working with others. I have a collaborative style and intuitive approach with clients and colleagues, which enables me to guide them to discover their full potential.

How relevant is image in the corporate environment?

We all know that first impressions are hugely important, and there are elements that come into play when we meet someone for the first time; gravitas, how we sound, our appearance. A colleague once described image as “our entry point when meeting others for the first time”. Once you have gained entry, then it is the content of what you are saying that others evaluate.

I work with clients to ensure that their image is congruent and supports their personal brand. Also, that it’s representative of the messages they want to convey.

Equally, image needs to be in harmony and alignment with the culture of their current workplace. When working with clients in career transition – maybe who have decided to move from the public to private sector and vice versa – I find they may need to adapt their image.

For example, a recent client had worked in a Global Investment Bank and changed jobs to an academic environment. He sought advice on how he could make that transition from an image perspective, and we worked together to create an image that was congruent with the University environment and his own values and beliefs.

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What actions have the biggest impact on personal brand?

Firstly, be authentic and true to yourself. If you try to be something you’re not you’ll inevitably slip up, which will certainly have a negative impact and outcome.

Secondly, be truly present and outward looking, rather than internally focused. We all like to feel listened to and valued, so when you’re interacting with another individual try to be fully with them in that moment and give them all of your focus. For example, if you’re texting in a meeting/conference call – it may be perceived that you are disinterested and disengaged.

Finally, be true to your values and beliefs – this will demonstrate that all important authenticity, ensuring you’re remembered for all the right reasons.

Jan Carrington Corporate and Personal Image Consultancy, www.jancarrington.com

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GDPR already influencing insurance buying As companies struggle to prepare for the EU’s General Data Protection Regulation (GDPR), we are seeing an increase in demand for cyber insurance and the prospect of stricter data protection laws has also seen a move towards higher limits, especially among first time buyers.

From 25 May 2018, the GDPR will place a raft of data protection requirements on organisations and increase the powers of data protection regulators.

Penalties for breaching data protection laws will rise significantly while companies will be required to notify regulators and consumers of significant data breaches.

For serious breaches, firms will have to pay fines of up to 4% of their global annual turnover, or EUR 20 million, whichever is the greater. This suggests that companies can expect much larger fines under the new regime. For example, TalkTalk was fined GBP 400,000 for its October 2015 data breach. Under the GDPR the fine could have been more like GBP 59 million.

According to analysis by Oliver Wyman, FTSE 100 companies could face fines of up to GBP 5 billion for breaches of the GDPR. Had the regime been in place for the past five years, the top listed UK companies could have been fined GBP 25 billion, it said.

A separate survey from Consult Hyperion predicts that GDPR fines could cost European banks USD 5.2 billion in the first three years (not including

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compensation, lost business and damage to reputation). The company expects to see 120 breaches resulting in million-euro-fines, with several fines in triple digits.

FINDING SOLUTIONS The insurability of fines for breaches of the GDPR has been a key focus for many of our clients who are purchasing cyber insurance. Standard professional indemnity and crime insurance policies can provide elements of data breach and other cyber related risks protection but they do not provide the breadth of cover that specialist cyber policies can offer. For example standalone cyber insurance will cover fines to the extent they are insurable by law. However, the extent to which insurance proceeds can be used to recoup the costs of regulator penalties under the GDPR is a grey area and one that will need to be tested in the courts.

One strategy adopted by some companies has been to shift some of their cyber insurance capacity to the Bermudan insurance market. The Bermuda regulators do not prohibit payment of fines and punitive damages

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According to analysis by Oliver Wyman, FTSE 100 companies could face fines of up to GBP 5 billion for breaches of the GDPR.

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The survey of IT decision makers in the UK, Germany,

France and the US also found that 42% do not even view compliance with the GDPR as a priority.

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£59m

and therefore insured’s are currently able to recover such fines from their Bermuda-based insurers. The cost tends to be only incrementally higher, and the capacity functions just as it would if purchased in the insured’s home country.

could possibly have been the fine for TalkTalk under GDPR for its October 2015 data

COMPLIANCE CHALLENGE

breach

Recent surveys paint a mixed picture of GDPR readiness.

Some companies may not be taking the GDPR seriously enough, even those that are finding compliance challenging.

Three quarters of organisations surveyed by Varonis Systems say they will struggle to meet the May 2018 deadline. The survey of IT decision makers in the UK, Germany, France and the US also found that 42% do not even view compliance with the GDPR as a priority.

£5bn FTSE 100 companies could face this fine for breaches of the GDPR, according to analysis by

Half of those surveyed say they are struggling with ensuring the security of information while one third of respondents had not yet conducted a data impact assessment in order to determine who has access to personal data.

Oliver Wyman

In March, a survey from Crown Records Management found that one in four UK businesses have cancelled all preparations for the GDPR on the mistaken belief that it will not apply after Brexit. Worryingly, 44% of those surveyed said they didn’t think the regulation will apply to UK business after Brexit.

$5.2bn predicted GDPR fines for European banks in the first three

This is despite warnings from the Information Commissioner’s Office that it intends to implement the GDPR in the US by the deadline, and that UK data protection laws after Brexit will be aligned to those of the EU.

years according to a survey by consuit Hyperion

Paul Towler, Senior Partner, JLT Specialty Limited, www.jltspecialty.com

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Events Calendar 2018 January 2018 M 1

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Women in Wealth Networking Breakfast, London Compliance Conference, London Summer Drinks Reception, London

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31 Women in Wealth Forum, London 3 30 CEO Dinner, London 31 Summit, London All dates and events are subject to change. These dates do not include briefings.

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Women in Wealth, London Associate Members Update, London GDPR Conference, London

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S 1 8 15 22 29

S 2 9 16 23 30

Hacker Girl Episode Four

Free to share & host Not for resale

The Trafficker

Written & created by Mark Johnson Illustrated by Nic Brennan

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Copyright: The Risk Management Group

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To find out more just follow, tweet or visit us

The Hacker Girl series is written and created by Mark Johnson (info@trmg.biz) and illustrated by Nic Brennan (nic@shugmonkey.com). All rights are reserved.

Although they are based in part on real events, all the characters and organisations portrayed in the Hacker Girl stories are fictional and are illustrated for educational and awareness-raising purpose only.

You may freely share this issue for personal use as you see fit, but please contact the author if you would like to host it on your site, or use it for in-house training or other commercial purposes.

I’M GOING TO BE PART OF A NEW CYBERCRIME ELEARNING PACKAGE*. WOW!

*Coming soon! Hacker Girl teaches cybersecurity and online investigations.

Published by The Risk Management Group

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Become a Member

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Influence

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