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Issue 3 March 2015

WMA JOURNAL In this issue

Financial Crime Technology The EU Managing Change

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About WMA Who we are The Wealth Management Association (WMA)

186 firms

is a trade association that represents and prides itself on working for the private client investment community. Of this number 110 members are

wealth management and stockbroking firms that deal directly for the private investor.

The remaining 76 are

associate members who provide

professional services to our member firms. If you buy or sell securities at

Our history

any time, you are likely to deal with a firm that is a member of WMA. Today WMA members reach more than 4 million investors,

manage in excess of £670 billion of the country’s wealth, carry out more than 20 million trades a year and operate

Stock Exchange in 1990, APCIMS’ mission as a trade

in more than 580 branches across the UK, Ireland,

association was to represent the interests

the Channel Islands and the Isle of Man.

of stockbroking firms which specialised in

£ 1994

Formed out of the London

1990

providing services for individual investors, balancing the powerful influence of major investing institutions.

In 1994, the membership grew to include more investment managers who, like stockbrokers, deal in, advise on, or manage direct investment in individual securities for personal and other non-institutional investors.

In 2013, APCIMS members voted

Our objectives

to change their name to the Wealth Management Association to better

Advocacy

reflect what their members do.

2015

Influence

2015 - Outcome of the srategic review announced.

Research and information Thought leadership

What we do WMA Member firms

Facilitation

Client Services European Authorities Financial Conduct Authority

WMA liaises between other bodies such as legislators, policy makers and regulators and our member firms and seeks to ensure that changes from the UK and Europe are appropriate and proportionate for the investment

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community and their clients.

Foreword from the editor Key outputs from the review are discussed in more detail inside but as a key ‘take-away’, WMA will be concentrating our focus on the following five areas: · · · · ·

At the WMA we are continuing to review the way we work and communicate so you will see even more changes as we progress down this road of development and change. For example in future Journals you will see updates from key WMA Stakeholders as guest editors.

Advocacy Influence Research and Information Thought Leadership Facilitation

I hope that you enjoy reading Journal. Please pass on any useful nuggets you’ve gleaned from reading this edition to your colleagues and we look forward to hearing your feedback.

Liz Field, Chief Executive of the Wealth Management Association

Also as we are out and about, we will be talking to you to get your thoughts, views and ideas. This magazine seeks to entertain and inform so we need your feedback on what you would like to see included in the future. In the meantime, please contact Sheena Gillett (sheenag@ thewma.co.uk) with any comments or ideas that you may have.

In this edition, we cover several important topics for our industry: Financial Crime, Technology, the EU and Managing Change. It also includes an update on the WMA strategic review to which many of you contributed.

Would you like to contribute an article?

Alongside updates from the WMA, the Journal includes several useful inputs from our associate member firms. These articles are an excellent opportunity to gain interesting insights into the wider industry and to learn more about WMA associate members. If you are an associate member who is interested in contributing to future editions of the Journal then please contact: Jason Baxter (jasonb@thewma.co.uk) or Sheena Gillett (sheenag@thewma.co.uk)

Issue 3 March 2015

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Contents 06 08 11 15

Financial Crime Conference 2015 Financial Crime Tackling Economic Crime

Unintended Consequences?

Establishing EU Liability

EU

Technology Innovation and Staying Relevant in Wealth Management Technology

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How can Technology Help in this New Era of Fee Management?

Impact Investing: The Zeitgeist has Shifted Managing Change

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Outcomes of the WMA Strategic Review

Data collected by ComPeer

The Wealth Management Association (WMA) represents 186 full and associate member firms.

The 110 full members are wealth management and stockbroking firms that deal directly for individuals, trusts and charities through a range of services spanning execution only, advisory and discretionary fund management.

WMA member firms manage the wealth of over 4 million retail investors.

The 76 associate member firms provide professional services to our full member firms.

Our members operate across more than 580 sites in the UK, Ireland, Channel Islands and Isle of Man, employing over 32 000 staff.

Member firms run 6 million client portfolios and carry out over 20 million trades a year.

At the end of 2014, the wealth management industry had ÂŁ677 billion of assets under management, up 6% year on year, therefore outpacing the 4.2% market rise (as calculated by the FTSE WMA Balanced Index).

Financial Crime Conference 2015 The Wealth Management Association held its annual Financial Crime Conference on Wednesday 28th January at the Willis Building. Over 70 delegates from more than 50 member and associate member firms registered to attend the conference, to hear financial crime updates and information from key parts of the industry. As a response to the current, and increasing, global concerns about cybercrime and cyber security, a number of talks focused on this area in relation to the wealth management industry.

Donald Toon, from the National Crime Agency (NCA), set out the Economic Crime Command’s priorities for 2015-16; these included a focus on money laundering, in particular ensuring international perceptions of the UK being a safe place to do business. He also highlighted that the NCA endeavours to gain a deep understanding of the way individual companies operate and a desire to build and strengthen relationships between the Agency and Wealth Management industry, utilising WMA as a key hub.

The 2015 WMA Financial Crime Conference was divided into two parts: a discussion of legal and regulatory concerns in the area of financial crime, and an overview of cybercrime and cyber security.

Key messages from the morning session include: • The FCA expects senior management engagement in the prevention of financial crime within wealth management firms • A relationship between the NCA and the WMA has been instigated, to further the Agency’s knowledge of the industry

Legal and Regulatory Concerns James London from the FCA gave an insight into the regulator’s expectations of the industry in 2015 and emphasised that combatting financial crime has been a key part of the FCA’s work over its two year history.

Of particular importance, although London recognised improvements, is that the FCA expect to see senior management engagement and responsibility in this area, setting a “tone from the top”. He also warned that derisking is an area of focus, emphasising the FCA position: “Who firms do business with is ultimately a commercial decision; but we are clear that risk avoidance does not constitute adequate risk management.”

In a presentation from law firm Herbert Smith Freehills, Susannah Cogman and Karen Anderson delivered an insightful update on key European financial crime regulation, coinciding with European Data Protection Day 2015. Delegates were able to gain extremely up-todate information on the 4th Money Laundering Directive, Market Abuse and General Data Protection Regulation.

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Cybercrime and Cyber Security Focusing on cybercrime and cyber security, Jeremy Smith from Zurich and John Collier from Willis emphasised the significance of the issue stating that cybercrime costs the world economy hundreds of billions of dollars a year, with 61% of breaches being data breaches, which is of particular importance to WMA member firms. They also provided food for thought on risk factors that firms should be considering, and which should be covered under firms’ indemnity cover.

Mark Johnson, from the Risk Management Group, gave a fascinating insight into the range of forms of cybercrime and cyber attacks, recommending the GCHQ 10 step model to enhance the cyber security of firms. Johnson also mentioned that social media is one of the biggest risk areas in terms of cybercrime in

today’s society, stating that firms need to have robust policies on areas such as social media – even extending to the security settings on employee social media profiles where there is any mention of the company, as well as providing information on steps individuals should take to lower the risk of being a target of cybercrime.

The significance of cybercrime was further highlighted

by Mathew Martindale from KPMG, who stated that cyber-attacks have been recently declared one of the top ten global economic risks at the World Economic Forum. Martindale suggested that firms should adopt a risk-based approach to protect themselves from cybercrime, and not rely solely on FCA guidance.

Key messages from the cybercrime sessions include: • Fascinating, but shocking, statistics and facts about the level of cybercrime and its impact • The numerous steps that both firms and individuals can take to protect themselves as much as possible from becoming victims of cybercrime

Cybercrime Quick Facts: The cost of cybercrime to the global economy is greater than the drugs trade.

10% of people worldwide have had their details breached (~800mn people).

At least 2.5% of Facebook profiles are malicious fakes.

For fi ms, in order to understand the cyber threats that they face, they should ask themselves three vital questions:

Firms should also consider the following “10 steps to cyber maturity”: 1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

Home and mobile networking Removable media controls Network security Managing user privileges Malware protection Incident management Secure configuration User education and awareness Monitoring Information risk management regime

Important steps for individuals to take, to protect themselves and the firm they work for from cybercrime activity, include:

1. Ensuring social media profiles are as secure and private as possible 2. Being aware of blackmail and data theft via social media and other cyber networks The WMA Financial Crime Conference was an extremely successful event; engaging speakers discussing a range of topics and issues ensured that attendees rated it 4 out of 5 (5 being excellent) in terms of the overall day.

Following the conference, the WMA will be putting together an information document on cybercrime to help our member firms better deal with this significant and growing issue, and we will also be pursuing a relationship with the NCA. Member Firms are able to view the presentation slides of the various speakers on the WMA website.

EMMA BIRD, PR & COMMUNICATIONS ASSISTANT, WMA

1. What are we trying to protect?

2. Who would target us and why?

3. What will this mean and how will it impact our business?

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Tackling Economic Crime The UK Government has placed the fight against economic crime firmly on its agenda in 2015. Financial institutions and senior management should ensure it is also high up on their agenda.

In a recent speech at George Washington University, Keith Bristow, Director General of the National Crime Agency, explained how many hundreds of billions of pounds of criminal money was almost certainly laundered through the British financial system, undermining the UK’s reputation as a financial centre.

His wide ranging speech explored the links between serious organised crime, economic crime, cyber-attacks and bribery and corruption. He also touched on the sheer scale of economic crime and cyber threats and how this made them national security threats.

The speech should not be seen in isolation. It is further evidence of Government, regulators and law enforcement agencies working together to keep the spotlight on their fight against economic crime and it follows legislative and regulatory changes aimed at tackling economic crime and punishing perpetrators.

In the last year or so we have seen several initiatives to combat economic crime: The creation of the National Crime Agency (NCA) – to tackle organised crime, economic crime and cybercrime; Creation of the Financial Sector Forum – partnership between the Home Office, National Crime Agency, British Bankers Association, regulators and other financial institutions to share information and combat economic crime; Cybercrime and cyber defence initiatives, such as the Joint Cybercrime Action Taskforce (J-CAT) and CBEST (a framework to deliver controlled intelligence-led cyber security tests) - to fight cybercrime, seize illegal profit and reduce the risk of cyber-attacks on the financial system; Sentencing Council’s Guidelines on Fraud, Bribery and Money Laundering - which should result in an increase in corporate penalties; Successful prosecution and sentencing under the Bribery Act 2010; Introduction of Deferred Prosecution Agreements under which a company charged with a criminal offence can have proceedings suspended if it agrees to various conditions, such as co-operating with prosecutions of individuals, making reparations or paying a financial penalty; Proposed legislative changes to the disclosure of beneficial ownership of companies - to enhance transparency of UK corporates as well as combatting tax evasion and financial crime.

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WMA Journal

UK Anti-Corruption Plan Building on these initiatives, the UK Government issued its long awaited “Anti-Corruption Plan” at the end of 2014.1 The Plan set out over 60 action points for the Government and its partners, both in the public and private sector. The Government has designed its strategic response to combatting corruption around four key components: Pursue: Prosecute and disrupt people engaged in corruption; Prevent: Prevent people from engaging in corruption; Protect: Increase protection against corruption; and Prepare: Reduce the impact of corruption where it takes place.

One of the proposed actions in the Plan is for the Home Office and the Department for Business, Innovation and Skills to consider further incentives to support whistleblowers in cases of bribery and corruption.

Another action point is for the Ministry of Justice to examine the case for a new offence of a corporate failure to prevent economic crime. This issue was foreshadowed in early September 2014, when the Attorney General, Jeremy Wright QC, speaking at the Symposium on Economic Crime, confirmed: “Government officials are considering proposals for the creation of an offence of a corporate failure to prevent economic crime, modelled on the Bribery Act section 7 offence.” 2 The Attorney General’s comments have the full support of David Green, Director of the Serious Fraud Office, who has previously spoken along similar lines of the need to consider a new offence.

The year ahead The fight against money laundering and economic crime also seeks to restore the UK financial sector’s reputation. A series of high profile scandals, such as the LIBOR and foreign exchange regulatory investigations, have damaged the City and recent money laundering allegations against a global financial institution have further eroded the public trust in financial institutions.

The Home Secretary’s recent announcement of the creation of the Joint Money Laundering Intelligence Taskforce (JMLIT) will see representatives from the banking sector, including some firms that have been under scrutiny, exchanging information and intelligence with law enforcement agencies to detect, prevent and disrupt money laundering and wider economic crime threats against the UK. It will run for an initial period of 12 months.

Persue, Prevent, Protect, Prepare The FCA announced the findings from its thematic review into market abuse in the asset management sector. The review covered 19 asset management firms and the FCA will be writing to the firms to provide individual feedback. Separately, the FCA confirmed it is investigating 67 firms or individuals that fall within the AIFMD for possible abuses ranging from financial crime to market abuse. It is likely that some of these investigations will result in public enforcement action.

Throughout the year, the Government, law enforcement agencies and regulators will continue their fight against economic crime, implement the action points in the Plan and keep this important issue firmly in the public spotlight. Now more than ever, there is a greater willingness to hold financial institutions and senior management to account and to take robust action to clean up the UK financial system. Economic crime is high up on the agenda of regulators and law enforcement agencies - firms and senior management within financial institutions should ensure it is equally as high up on theirs.

JAGDEV KENTH DIRECTOR OF RISK & REGULATORY STRATEGY FINANCIAL INSTITUTIONS GROUP, WILLIS GROUP 1 https://www.gov.uk/government/publications/uk-anti-corruption-plan 2 https://www.gov.uk/government/speeches/attorney-generals-keynoteaddress-to-the-32nd-cambridge-international-symposium-on-economiccrime-on-tuesday-2-september-2014

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Protect yourself from boiler room share scams If you get an unexpected phone call from someone you don’t know trying to sell you shares it may be a boiler room scam. Boiler room organisations run a financial scam using convincing sales tactics to persuade you to buy shares which are of little or no value. If you do buy the shares you may find they are worthless. The majority of boiler room victims are male and experienced investors - it is not just the novice investor who can be duped. The average loss is £20,000, with around £200m* lost in the UK each year.

If you deal with a boiler room they will not be authorised by the Financial Conduct Authority (FCA) and you may not have the right to complain or claim compensation.

Generally it’s against the law to ‘cold call’ a person to try to sell shares or other investments. So, if you haven’t invited the call just hang up!

How to recognise a boiler room • The first time you hear from a boiler room could be by post or email. They may have written to you offering a free research report into a company in which you hold shares, or a free gift or discount on their dealing charges.

• You will then receive a phone call from a well trained, highly professional sounding salesman. They can be very persistent, never taking ‘no’ for an answer. They often use a script to help them answer your questions or ward off your objections. They phone their victims every day until they finally make a sale, or until you hang up on them.

• They will often claim to be from legitimate firms, or firms which sound legitimate and have professional looking websites.

• You may be told that you have already entered into a contract to buy the shares and are under an obligation to pay.

This is not the case as such contracts are not enforceable under UK law. *Source: Financial Conduct Authority

How to protect yourself FCA

• Get the name of the person and organisation contacting you.

• Always ensure the firm is on the FCA Register and is allowed to give financial advice by visiting http://www.fsa.gov.uk/register/home.do.

• Use the details on the FCA Register to contact the firm, rather than a direct line they might give you.

• Call the FCA Consumer Helpline on 0800 111 6768 if there are no contact details on the Register or you are told they are out of date.

• Check the FCA’s list of known unauthorised overseas firms at http://www.fca.org.uk/consumers/protect-yourself/unauthorised-firms/unauthorised-firms-to-avoid.

Report a scam • If you have any doubts, call the FCA Consumer Helpline with details, or complete the ‘Unauthorised firms reporting form’ at http://www.fca.org.uk/consumers/protect-yourself/report-an-unauthorised-firm.

• If you think you have been a victim of boiler room fraud you should always contact Action Fraud on 0300 123 2040 or via their website http://www.actionfraud.police.uk./ For a list of FCA authorised stockbrokers visit the WMA website www.thewma.co.uk (go to ‘Buying and Selling Shares’) or contact WMA via telephone on 020 7448 7100 or email at info@thewma.co.uk.

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PartThree: Unintended Consequences?

Establishing EU Liability In recent months we have seen media coverage relating to the punitive fines being imposed on financial institutions for regulatory infringements, banks finding ways to circumvent rules relating to bonuses and the UK Government taking the EU Commission to court over this very issue. At the same time a growing number of leading financial figures in the City are voicing their concerns about the sheer volume of financial legislation being churned out by the Brussels bureaucracy. Chief amongst these exponents has been HSBC’s Chairman, Douglas Flint, who has warned about the growing dangers of disproportionate risk aversion as individuals, fearing the zero tolerance climate that permeates the regulatory landscape, seek to protect themselves. As one practitioner recently confided to me “we are like rabbits caught in the headlights”. Meanwhile Lloyd’s chief executive, Antonio Horta Osorio, has been reported as saying that he worries that practitioners will spend more time creating a paper trail rather than focusing on customers, whilst the BBA is pushing our government to do more to stem this tide of regulation which the BBA fears is having serious unintended consequences.

In my previous two articles I presented the results of my on-going research into the unintended consequences caused by EU financial services regulation. This led me to question whether they did in fact facilitate the 2007/2008 financial crisis. I arrived at this by analyzing the negotiations that led to the Investment Services Directive (ISD), its successor the Markets in Financial Instruments Directive (MiFID) and the subsequent unintended consequences these directives caused. The results of this research were presented in my first article which appeared in this publication in the autumn of 2013. I subsequently followed this up with a second article which appeared in the spring of last year, covering my analysis of the demise of the Northern Rock Bank in which I deduced that EU directives and regulations were complicit in the resulting fiasco which heralded the 2007/2008 financial crisis here in the UK. In both of these cases I concluded that there is both compelling as well as persuasive evidence that the resulting unintended consequences could have been foreseen.

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I now pose the following legal hypotheses. If EU financial regulations cause unforeseen consequences and intent is given a broad definition to include events that are highly likely, then, if these unintended consequences could be shown to have been foreseeable, would not the inevitable conclusion be that they are not unintended but intended consequences? If so, what liabilities arise under EU law and could the legal application of the common law concepts of intention and foreseeability be applied in order to establish possible cause of action against the EU?

law relating to civil wrongs such as negligence).

In this article I present an overview of my latest research in which I consider the three main elements required before an action for damages can proceed against the EU. In doing so I consider the viability of seeking redress from the EU via the courts by analyzing how, if at all, we could construct a hypothetical action for damages or loss1 against an EU institution.

It is to be noted at the outset that the definition of EU institution extends beyond the definition given in Article 7(EC). For example, Community related bodies such as the European Central Bank (ECB) and the European Securities and Markets Authority (ESMA) also fall under the general ambit of the definition of EU institution where it concerns liability matters. Let us therefore assume hypothetically that we are contemplating to bring an action for damages against one of these institutions as I work through the various elements.

Elements for Action Let me first turn to the three main elements required before an action for damages can proceed. In essence we must first establish that a wrong has been committed by the EU, secondly that the claimant must have suffered some form of damage and thirdly that there is a causal link between the two. These elements follow a similar pattern to those with which we are familiar under English tort law (the

Under Articles 235 and 288 EC the EU is liable, at least in principle, for any damages that the EU’s institutions, employees or agents cause as a consequence of performing their duties. Action for damages can therefore be brought against the EU institution deemed to be at fault or for damages caused by its employees, in which case the EU is also liable by way of vicarious liability (refers to a situation where someone is held responsible for the actions or omissions of another person).

Establishing Fault

Considering the first component, it is inherent that there must be some fault by the EU institution and/or employee before an action may be considered. Under Article 288(2) there is no strict liability2 (Strict liability is the legal responsibility for damages, or injury, even if the person found strictly liable was not at fault or negligent).

1. For the remainder of this article I will use the term damage to mean damages or loss 2. Douglas-Scott, S, Constituional Law of the European Union, Harlow, UK. Pearson, 2002 at P.389 3. Case 5/71 Aktien-Zuckerfabrik Schoppenstedt v Council [1971] ECR 975 4. Douglas-Scott, S, Constituional Law of the European Union, Harlow, UK. Pearson, 2002 at pp.394-400

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“

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We are like rabbits caught in the headlights

I have also considered the scope given by the European courts to the definition of “wrongful act” by evaluating administrative acts, negligent acts by EU employees and liability arising from the adoption of wrongful acts having legal effects by reviewing the relevant case law. I have found that generally the courts apply a restrictive approach as to what constitutes a ‘wrongful act’. Concerning the adoption of legislative acts, my investigation found that the absence of an annulment (in this context a judgment by a court which retroactively invalidates a legislative act to the date of its formation) does not preclude a subsequent action under Article 288. However, this does not mean that actions arising are in the main successful. In fact an analysis of the case law indicates that the Court of Justice of the European Union (CJEU) is very restrictive in the test that it has formulated the ‘Schoppenstedt’ formula3 (so called as it was developed in the 1971 case of Aktien-Zuckerfabrik Schoppenstedt v Council) in order to establish EU liability for legislative acts. The ‘Schoppenstedt’ formula contains three main elements which must be met in order to establish liability: 1. the legislative measure in question involves choices of economic policy 2. there has been a breach of law relating to the protection of the individual and 3. the breach has been sufficiently serious.4

for liability to be established “ intheorder damage must be deemed to

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be conclusive, specific and measureable.

Therefore in order to clear the way for our hypothetical action for damages to succeed we must be able prove that the legislative measure in question involved choices of economic policy. For example, did the regulation relate to a choice of economic policy?

Could we, for example, argue that CRD IV did involve a choice of economic policy as it relates to consumer protection but has arguably resulted in increased costs and market contraction leading to loss of opportunity and ultimately to increased costs and less choice for consumers? Could we argue that MLD III (the 3rd Money Laundering Directive) has resulted in a breach of law relating to the protection of the individual given the broad nature of surveillance being undertaken ostensibly to protect against criminal and terrorist activities? And finally has this breach been sufficiently serious? The latter, as we can see, involves an element of subjectivity which makes for uncertainty of outcomes. Given the above we begin to see the complexities of constructing a case against an EU institution.

Establishing Damage and Causation I now turn to the other two elements required in order to bring an action under Article 288, damage and causation. The first point to note is that the term ‘damage’ is not define in the EU Treaties. This would point towards a broad interpretation

of what constitutes ‘damage’ by the courts but, here too, like their treatment of ‘wrongful act’, which I covered earlier, the courts have tended to take a restrictive approach.

This means that once again the courts make it difficult to bring an action against an EU institution.

Generally, in order for liability to be established the damage must be deemed to be conclusive, specific and measureable. However, an examination of the case law would indicate that the courts can at times relax these requirements as in Kampffme er [1967]5 where it found that the EU may be liable if the loss can be ascertained to be “imminent and foreseeable with suffici t certainty”.6 From a hypothetical perspective my research would indicate a strong case could be made concerning “foreseeable with suffici t certainty” where it concerns the first apital Adequacy Directive, the Investment Services Directive as well as in the Northern Rock case. The question of “imminent” could however prove more problematical.

An examination of the existing case law also indicates that the courts will award damages for economic loss but there is a general duty on the claimant to mitigate against loss.

Therefore, if the claimant cannot demonstrate to the Court that it did mitigate against loss, the action will most likely fail. In other words if you would have to demonstrate what measures you took to avoid loss. Most importantly the duty to prove damages lies with the claimant who must provide both irrefutable and corroborative evidence to the

5 Cases 5,7,13-24/66 Kampffme er v Commission [1967] ECR 6. Ibid at 317 7. Case 26/74 Roquette Freres v Commission [1976] ECR 8. Cases 106 & 107/63 Toepfer v Commission [1965] ECR 405

courts.7 Turning to the third and final element, causation, EU case law also indicates that the courts apply a narrow interpretation employing a restrictive approach and issuing clear guidelines. For example the courts expect evidence that shows that any damage caused be of a sufficiently direct consequence for a wrongful EU action.

EU Law is frequently implemented at national level, for example, via statutory instruments under English Law, the question therefore arises as to which forum, that is which court, are claimants to use for litigation.

Should they, for example, bring their actions in the English courts?

In order to attempt to answer these questions I have evaluated EU case law such as Toepfer8, Kampffmeyer9 and Haegeman10, Professor DouglasScott11, from the University of Oxford’s faculty of Law, tentatively concludes that where it concerns concurrent liability (the principle that multiple defendants can be liable for the same damage) then, if the claimant is seeking the return of monies paid to a national authority then one should proceed in the national courts. On the other hand if one is pursuing sums withheld by a national authority or has sustained loss resulting from, for example, a regulatory instrument then one could proceed to bring an action for recovery in either the national or EU courts. The choice of one forum appears to rest on whether one is seeking contractual redress or a tortious claim. Clearly one crucial issue will be cost, it is a costly business to sue both the UK Government and the EU.

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Conclusion The biggest regulatory threat we face is without doubt EU Regulations. These are legislative acts of the EU which are directly applicable in Member States without the need for national implementing legislation. We also know that the EU imposes a strict time limit to bring an action, usually two months, but, we can certainly challenge them if there are doubts about the Community’s legitimacy for making a particular piece of legislation. However, EU legislation is secondary legislation and must conform to boundaries laid down by primary legislation, in our case Acts of Parliament, more specifically the European Communities Act of 1972, as amended. That being the case I would refer to The Rt. Hon Lord Justice Laws judgment in Thoburn v Sunderland City Council12 (the weights and measures case) where he states, “There is nothing in the European Communities Act of 1972 which allows the Court of Justice, or any other institutions of the EU, to touch or qualify the conditions of Parliament’s legislative supremacy in the United Kingdom. Not because the legislature chose not to allow it; because by our law it could not allow it. That being so, the legislative and judicial institutions of the EU cannot intrude upon those conditions.”

A.L.DANINO M.RES.,LL.B, ASSOCIATE, CULDAN ASSOCIATES

9. Cases 5,7,13-24/66 Kampffme er v Commission [1967] ECR 317 10. Case 96/71 Haegeman v Commission [1972] ECR 1005 11. Douglas-Scott, S, Constituional Law of the European Union, Harlow, UK. Pearson, 2002 at P.403 12. Thoburn v Sunderland City Council [2003] QB 151, para. 58

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Closing the Expectation Gap: Technology Innovation and Staying Relevant in Wealth Management Cloud computing is facilitating the kind of strategic technology innovations that wealth managers need to stay relevant - as an offering to HNW clients and as a profitable busines .

The wealth management industry stands at an inflection point where traditional differentiators and competitive advantages are under severe pressure. Challenger brands are forcing market incumbents to take a long, hard look at their business models as the gap between the likely winners of the future and those that will fall behind widens. Against this backdrop, an industry previously vaunted as predominantly a “people business� is turning to technology to cope with a raft of operational challenges and a client base that is more demanding than ever before. Necessity always being the mother of invention, minds are having to open to the possibilities presented by new technologies and strategic approaches to IT. Wealth managers of all types are making bold moves with disciplines such as business process outsourcing, hosting and cloud bursting, particularly the many challenger brands or spin-offs whose budgets cannot justify establishing an in-house IT team, building difficult-to-maintain proprietary systems or buying on-premise servers. Some may have had their hands forced to an extent, but it is likely that these wealth managers will soon be reaping significant rewards from being at the vanguard of what we may term the front-to-back digitisation of wealth management.

The years since the financial crisis have seen a dramatic shake-up of the industry. It now looks very different indeed, even compared to just a few years ago. M&A activity has been frenetic and big names have fallen by the wayside while new entrants have come thick and fast.

It also now feels very different – particularly for technology vendors. Technology innovation was perhaps once viewed with a degree of suspicion, but now even non-IT executives are seeing it as a saviour. The increased regulatory burden has prompted huge technology investment across the industry. But technology spend is now about far more than helping wealth managers stay on top of a complex web of new international regulations. Firms are seeking significant efficiency gains, which will help them offset spiralling compliance costs, but they also need to be delivering the kind of slick, value-added service clients today expect. Put simply, their new mantra is to do (much) more with less and, as a result, they are more open to considering new technology solutions - like cloud computing and thirdparty software platforms - than ever before.

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The need to wring more value out of everyday business processes is pressing.

Scorpio Partnership’s latest barometer of profitability in the wealth management industry found that the average cost/income ratio across the sector was 83 per cent in 2013, up from 80 per cent the year before . There were certainly encouraging signs in terms of growth (firms logged an average rise of 11.3% in assets under management) yet it appears that efficiency gains remained elusive for many. Perhaps the reason behind this is the industry’s past reluctance to pursue operational and technology excellence as vigorously as other sectors. While this may have been sustainable in the boom times – when wealth management was a relatively high-margin, low-maintenance business with very much “stickier” clients – the industry now has to up its game across the board in terms of operational efficiency and technology innovation.

Appetite for change Wealth management firms know they need to change how they do things, in many cases quite radically, to retain their competitive edge. Traditional institutions are being schooled by new entrants like self-service investment platforms to know that the traditional wealth management model is far from unassailable. As uncomfortable as these lessons might be for existing players, many would agree that the appetite for technology innovation they have created across the sector is a very positive development.

There are myriad challenges facing the wealth management industry today, but these can really be reduced to two key issues. The first is maintaining profitability in the face of rising costs; the second is staying relevant to a client base that has changed dramatically in terms of its needs and wants. These are big challenges for which there are no easy answers, yet better use of technology will clearly be the bedrock of the solutions wealth managers seek.

Wealth managers looking to innovate will find plenty of inspiration in today’s market – and not just with the new entrants. After decades of widespread underinvestment, a huge amount of IT spend is going on. Indeed, according to CEB TowerGroup, 14% of wealth managers anticipated spending $20-100m on technology last year , while 12% foresaw spending a massive $100m or more (even more significantly, 57% expected further increases over the next couple of years). Behind the scenes, several of the world’s largest institutions are completely overhauling their IT infrastructures.

Meanwhile, client-facing enhancements are ubiquitous as the industry reshapes itself to meet the challenges of the new digital age. From apps that allow clients to carry out transactions on the move, to customisable reporting portals and social media communication platforms, there are exciting front-end developments happening at even the most traditional players (and they are obviously putting this front and centre in their PR).

Yet if we look closer at this flurry of innovation, a highly fragmented picture emerges. Technology enhancement may be an industry-wide movement, but it is not manifesting evenly – not even within each individual wealth manager. This is as we might expect, given the margin pressures they face. Firms are making investments where there is greatest need or where they expect the greatest (and quickest) return on their investment. As such, many wealth managers are focusing their technology investments on systems that will help them cope with the heavy regulatory burden and minimise business risks, while also putting the brakes on the associated costs. The increasingly hard-line stance taken by regulators - on taxation, suitability and KYC - means that no firm can afford to stint on their compliance capabilities now.

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Wealth managers held back The need to focus technology spend on the most business-critical areas is one reason why enhancements are happening in a rather piecemeal fashion generally. However, there is another (arguably bigger) factor holding many wealth managers back on technology: the legacy and integration issues that continue to dog the industry.

A great deal of firms are using a combination of different systems - some in-house, some off-the-shelf and others which may have been inherited through acquisitions and were never properly integrated. Hamstrung in this way, it is little wonder that wealth managers are not enhancing their technology capabilities as aggressively as they must surely wish to be.

Many a chief technology officer must be wishing that they could simply start afresh, but ripping out existing IT architecture is simply not an option for the vast majority of wealth managers. Those new entrants which are blazing a trail on technology have had the inestimable advantage of having started with a “blank piece of paper” at a time when cutting-edge, yet cost-effective, new technology solutions are more accessible than ever. For such players, approaches like cloud computing have not so much lowered barriers to entry, as demolished them.

But what of the majority of wealth managers, for whom legacy and integration challenges still loom large? Root and branch technology overhauls can be prohibitively expensive and, moreover, a serious distraction from the actual business of being a wealth manager. What is more, many firms will have already invested so much in crafting and customising systems to meet their unique needs that simply writing these off could be too painful.

Psychologically and practically, cutting the Gordian knot is not an option; disentangling it gradually will be a more appealing choice for most wealth managers.

Happily, there is a corollary to the digitisation of the wealth management industry: the “coming of age” of the technology vendors serving it. Technology providers now understand wealth managers’ needs better than ever before and the relationship between the two is far more collaborative and consultative in tone.

Crucially, technology developments also mean they have become far more able to apply the same principles of client-centricity and flexibility which wealth managers themselves espouse. Vendors know they must provide open systems that can “talk” to others easily, so that their clients can have free choice in how they configure their IT infrastructures. The cloud was born for this kind of open architecture integration, allowing wealth managers to continue to leverage past IT investments and cherry-pick further enhancements gradually. The word “solutions” is arguably overused in the technology sector, but it is now more appropriate than ever given the flexible approach to implementations cloud computing allows. Cloud-enabled vendors are providing pragmatic, real-world answers to the wealth management industry’s most pressing problems.

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A five-year window There should certainly be a real sense of urgency. KPMG recently warned wealth managers to start fully leveraging the innovation and disruptive technologies seen in other financial services sectors without delay, since the “window of opportunity to establish marketplace leadership will remain open only for a relatively short period – perhaps five years, at most”. The choices available to clients, and their willingness to switch providers, means that staying relevant to them is paramount, the consultancy said.

Wealth managers are increasingly exhorted to ensure they remain relevant to clients if they are to gain (and retain) their competitive edge. This may seem like a statement of the obvious, but actually, what constitutes “relevance” continues to change at a dizzying pace. PwC’s Asset Management 2020: a Brave New World is one of the most instructive pieces of recent research to emerge on this theme. It predicts seismic demographic shifts in the client base, with corresponding changes in demand for products and services. More importantly, it identifies a significant expectation gap between clients’ needs and firms’ offerings which disrupters can and will capitalise on. Brand prestige means far less today. We only have to look to the instant messaging platform WeChat’s salvo on the Asian wealth management market to see that actually quite credible competitors are coming from all kinds of unexpected places now.

This expectation gap is multi-faceted, but easily understood if we see wealth management services as clients do – in the context of all their other financial and consumer experiences. Taking such a view, we see other sectors creating expectations, which wealth managers must now race to meet. Thanks to the big-data behemoths of this world, clients expect a huge degree of bespoking as standard; given the cutting-edge innovations retail banks are rolling out, they are right to expect these from their wealth manager. For functions such as mobile account access and customisable client portals to become scarcer further up the wealth scale simply makes no sense.

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Staying relevant Closing the expectation gap through technology is not just about matching up to the slick client experiences offered by other sectors, however. Instead, it cuts to the heart of the wealth management value proposition itself.

Enhanced client reporting is a powerful example here. Where clients once had to wait patiently for a weighty (and probably dated) valuation report to land on their doormat, now they can be offered 24/7 live reporting - via the device of their choice - which can be customised to show precisely what they want to see. It might even be the case that “being relevant” to many clients today might be about the environment and e-documents over reams of paper. Granular, intuitive, customisable reporting modules will both empower and reassure the client.

Even more importantly, they allow the wealth manager to demonstrate very clearly where their investment expertise has delivered value. With clients scrutinising fees more closely now, such capabilities are key.

Client-orientated technology is going to make all the difference to the bottom line, improving wealth managers’ ability to attract and retain clients by servicing them at the highest standards cost-effectively. Yet for all the reasons previously outlined, many firms are wary of significant capital expenditure on enhancements that are considered non-essential. Happily, the advent of cloud computing, increased collaboration between technology vendors and greater openness to innovation from regulators are going a long way towards solving this conundrum.

Wealth managers once built in-house because they believed an off-the-shelf solution could not possibly meet their needs. Now, they know that they can pursue a truly open-architecture approach to their technology, bolting on whatever they need from whichever provider they prefer. Similarly, not so long ago, wealth managers were limited to the data storage and processing capabilities of on-premise servers (with all the inefficiencies and expense that entails). Today they can access pay-as-you-go computing resources through the cloud, which allows them to give clients and their advisors 24/7 access to performance data, on any device they choose.

What’s more, regulators are beginning to really smile on innovation as they seek better outcomes for consumers.

The quest for added value and relevance is one of the primary drivers of change in the wealth management industry today. Attaining them calls for technology innovations, which really do represent cost-conscious, flexible and future-proof solutions for a sector where competition is really starting to heat up. According to CEB TowerGroup, gaining competitive advantage is the biggest benefit wealth managers see themselves getting from cloud computing . Given that PwC confidently predicts that the cloud computing market will have grown fivefold from $41bn in 2011 to hit £241bn by 2020 , it seems that wealth managers are not alone in seeing the cloud - and all the other innovations it allows - as key to their future competitiveness. For many wealth management organisations, leveraging cloud-based solutions may be the only way they can adapt fast enough to keep meeting clients’ expectations and to preserve margins healthy enough to make it worth the effort - in short, to stay relevant and close (rather than fall into) the expectation gap.

NICOLA COWBURN, VP, GLOBAL MARKETING, SIMCORP CORIC

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How can technology help in this new era of fee management?

The way fees are charged is changing across wealth management, drifting upwards. This article examines this transition and explains how technology can improve transparency, accuracy and efficiency for wealth managers, while helping their business scale.

Fees are changing…

Management fees reflect the underlying day-to-day effort that goes into maintaining a portfolio, from ensuring it is in line with investor objectives to more administrative tasks. These tasks include producing client packs, processing dividends and performing due diligence.

Today, the way in which wealth managers make money is shifting. Historically, much of a manager’s revenue was dependent on fees levied on trades executed on behalf of the client. Fees were based on the value of a portfolio.

But this did not necessarily reflect the amount of work that went into managing it. The fees were more directly related to the success of the fund manager or the market as a whole.

But today’s wealth managers are increasingly moving towards fees that are fixed and periodic, rather than transactional. Fees are calculated using a number of different scales. Some based on the performance of the portfolio and some based on the number of dividends processed or the number of holdings administered.

There are a number of reasons for this change. A key one is that transaction costs can create improper incentives for wealth managers and encourage unnecessary trades.

It makes sense, therefore, for a manager’s revenue to be independent of these decisions to preserve objectivity.

Another major driver is that periodic charges allow for a more predictable, consistent income stream. A good thing for anyone in today’s lean times, but especially helpful for wealth managers, given trading volumes on the whole are down on pre-crash levels.

Periodic charging renders wealth managers less vulnerable to market cycles.

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Fees are going up…

As periodic charging is becoming an industry standard, a number of factors are driving fees upwards.

To start with, we are in a period of regulatory overload.

Since the crisis, a wave of new reforms has come into force, aiming to bring greater openness to the financial sector. From the US-led FATCA, to the FCA’s focus on conduct risk and suitability, one common feature of these reforms is an increase in the administrative burden faced by wealth managers. A greater amount of data must be captured, reporting needs more regularity, and there are many new checks, controls, and balances. As a result, fees have been pushed up and will continue to rise.

In addition to regulation, increased competition has put wealth managers under pressure to make bespoke fee arrangements with individual clients. Sooner or later, as pressure from the media and investors builds, we are likely to see a transition to performance-based fees.

All this is making fee structures more complex, which is increasing costs. This is where technology comes in, enhancing transparency, accuracy and efficiency across the business.

Transparency, accuracy and efficiency…

Numerous compliance measures have hit wealth managers since 2008. However, the regulation with the most obvious impact has been the Retail Distribution Review (RDR). Wealth managers are growing accustomed to charging clients direct, rather than relying on rebates and commissions from product providers, platforms and intermediaries.

Breaking down charges into very specific costs for complete transparency has become the new norm. It is always more difficult for a wealth manager to do so when manual processes are involved. Technology can remove this headache by enabling wealth managers to share information, such as precisely how fees are calculated, with clients and regulators.

With the use of technology even the most complex fees can be calculated more accurately, improving the likelihood that fees are paid on time. It also means that wealth managers can increase the frequency of charges and move from half yearly to monthly fees. This not only eases cash flow but is also fairer for the client. Transparency of fee reporting also helps firms to quickly make adjustments and easily audit them.

While this type of software isn’t new, take-up within the wealth management space has been limited due to idiosyncrasies across different client arrangements. Older generations of software have been too rigid to accommodate this variety. However, recent technology is much more flexible. This means wealth managers can improve the accuracy of calculations and records, while offering the more complex and diverse fees that a post-RDR world demands.

It’s in the efficient processing of complex and diverse fees that technology really comes into its own. A wealth manager with very straightforward fees may be able to continue to muddle through using spreadsheets. However, those with complicated fee arrangements – an increasing portion of the market – require a more advanced system.

The importance of this possible improvement cannot be overstated. It is not at all uncommon for clients – even those with very complex fee structures – to find that switching from manual to automatic processes can reduce the fee calculation process from around a month to just a day. Once set-up, this translates directly in to reduced overheads, significantly improving the efficiency with which fees are processed.

Scalability…

Technology benefits go beyond enabling greater transparency, accuracy and efficiency.

Improved automation across the organisation can also help a wealth manager’s business scale.

Managing fees in an automated, rather than manual way, allows wealth managers to look after more clients for the same time and effort. Resources can therefore be diverted to enhancing relationships with current clients and bringing in new ones. This means funds under management can increase without a proportionate increase in costs.

Planning for future growth is important in light of recent UK pension reforms, due to land in April of this year. These reforms are likely to divert a substantial new chunk of wealth away from annuities and into the asset management space. Any wealth management firm that can forge flexibility, efficiency and scalability on the fees front now will position itself well for the coming influx.

STEVE MARTIN, SENIOR BUSINESS CONSULTANT, DION GLOBAL SOLUTIONS

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Impact Investing: The Zeitgeist has Shifted “It’ll be gone by June.” Thus did Variety magazine airily dismiss rock n’ roll in 1955. Anyone can make a mistake. In the wonderful world of investment advice, erroneous predictions aren’t just tena-penny; they arrive in flurries, like confetti scattered at a Sicilian wedding. But one prediction seems to me fairly sound – Impact Investment is no fly-by-night creature, for a number of reasons.

Impact Investing – the investments made in companies, organisations and funds, with the aim of generating measurable positive social and environmental impact, together with a financial return – has quietly moved out of the slipstream into the mainstream. Impact Investing is not charity. It’s not idle tree-hugging.

It’s not do-gooding on a grand scale. It’s much more hard-nosed than that.

In January this year this sea-change in attitudes was expressed in a Mansion House speech by Sir Ronald Cohen, Chair of the Social Impact Investment Taskforce established by the G8. “I believe we are now in the early days of a social revolution,” he said. “The equality of opportunity that has been our mantra for decades, as the foundation for a fair and thriving society, is calling us to confront social challenges…We are still very far from resolving even our most urgent social issues. Instead, as Philip Larkin put it, ‘Man hands on misery to man’, social issues are passed unresolved down the generations. Why?” Sir Ronald’s speech did not really answer that question; much more importantly, he delineated the ways in which those social challenges are going to be met by Impact Investing.

Among the community of High and Ultra High Net Worth Individuals, their families, and associated foundations, there is a vast inter-generational transfer of wealth now quietly passing to a younger generation of individuals who are no longer interested in the continuous accumulation of capital. This new generation want to change the world for the better, in a myriad of ways.

This nascent ‘riches-revolution’ is an opportunity for those charged with managing the portfolios of HNWIs – if only they can find ways to channel it.

But it’s not only the HNWIs who are seeking Impact Investing opportunities; a YouGov poll in October 2013 found that 63% of British investors would like to be offered a sustainable and ethical option when choosing investments.

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Impact Investing is also something where – ever the financial innovator – Britain is ahead of the curve, thanks, amongst other things, to the implementation of the Social Investment Tax Relief in July 2014. This enables individual investors to take a 30% income tax relief on investments of up to £5 million a year in charities and social enterprises, or up to £15 million over an organisation’s lifetime.1 The global universe of Impact Investing is currently estimated to have $46 billion of assets under management. This is a pittance out of the total $13.5 trillion of global funds, but Impact Investing is set on an astonishing exponential growth trajectory, likely to reach $600 billion by 2018.2 It’s also a universe with powerful government backing – the G8 has called on governments to unleash $1 trillion of private sector investments to tackle widespread social problems, and improve access to capital for impact businesses. This scale of government backing is perhaps not too surprising; most governments, of any complexion, are well aware that their ability to fund socially vital projects out of treasury coffers is stretched, and going to be tested well into the future.

So rising demand for Impact Investing is being matched by rising supply of Impact Investing opportunities – and the Social Stock Exchange (SSX) has positioned itself to match supply and demand.

Impact Investor is the educational and news website of the Social Stock Exchange, aiming to broaden understanding of the impact investing market. Since it was first launched in June 2013, SSX members have raised more than £200 million, with a combined market capitalisation of its 12 members of more than £1.3 billion. It now has the world’s first regulated market on ISDX for impact businesses, regardless of their size.

There is a healthy pipeline of companies currently awaiting first-stage approval by the SSX’s Admissions Panel. The SSX not only has a transparent but also a highly regulated secondary market, targeting both institutional and retail investors.

As for those retail investors – the middling income families who look for opportunities to make Impact Investments, or who want their ISAs or pensions not only to do well but also do good – they are perhaps less well served right now than the HNWIs. According to Big Society Capital, who commissioned a survey of IFAs by Opinium 1 Research by the City of London Corporation and Big Society Capital suggests that Social Investment Tax Relief could generate up to £480 million of new investment over the next fi e years.

2 JP Morgan, Spotlight on the Market, the Impact Investor Survey, May 2014.

in September 2014, only 14% of IFAs felt confident they understood Social Investment Tax Relief, despite the fact that almost 25% of IFAs said their clients had expressed an interest in social investment. Personally, I don’t regard this as too much of a problem for the future of Impact Investing – grand strategies always take time to filter down to the troops on the ground. Or, to put it another way – the weight of even conservative opinion has shifted irrevocably in favour of growth in Impact Investment. As Sir Ronald argued in January: “If, as seems to me, impact investment can deliver 7-10% per annum net of fees with a low correlation to equity markets…allocation should grow to 3-5% of HNWIs and foundation portfolios over a decade or two…my conclusion is that capital flows into impact investment are potentially huge.”

Perhaps the most important (yet least quantifiable) factor underlying the irrepressible growth of Impact Investing is that it is completely aligned with the zeitgeist. Almost everyone – at least, in the world’s developed economies – is exhausted by tales of socially irresponsible fat-cattery.

There are many signs that HNWIs are steadily moving towards 100% impact investments – although these signs rarely make the headlines. Separate initiatives are springing up, ranging from the 100%IMPACT Network, the brainchild of Charly Kleissner in the US, an association of HNWIs seeking to invest all their funds in Impact Investing, to the BALLE-RSF Foundation, which in December 2014 linked 11 community foundation leaders, representing nine foundations with more than $2 billion in collective assets, who have committed to an 18-month programme of study and training to equip them to pursue Impact Investing initiatives.

There is therefore a widening yearning for opportunities to put one’s portfolio to more socially responsible use, while ensuring that it achieves a market-competitive financial return. The so-called Millennials, the next generation of investors – those who have been forced to become more socially and environmentally aware by dint of the broad array of international problems they face – do not have a status quo to which they can return, even if they wanted to. For this generation, Impact Investing makes perfect sense.

Gary Mead3, Editor of www.impactinvestor.co.uk

3 Gary Mead is a journalist and writer who has worked for the BBC, Granada TV, and the Financial Times. He was Head of Research for the World Gold Council and a commodity analyst for a variety of investment banks before joining the Institute of International Finance in Washington D.C. as Director of Media. Prior to taking up his latest post he was Executive Director of New City Initiative, a lobby group of privately owned asset and wealth managers.

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Outcomes of the WMA Strategic Review The last year has been an extremely exciting time for the Wealth Management Association, following its rebrand from APCIMS in October 2013. In my first speech as CEO of the association, at the 2014 annual conference on the one year anniversary of the rebrand, I called on members to feed into a new strategic review.

Since then, I have been regularly meeting with member firms, travelling across the country to determine the key needs and wishes of the member firms and the areas that the WMA should focus on to help the members and their clients.

The WMA has a solid basis upon which to grow and fulfil its purpose as the trade association for wealth management. It has specialist wealth management employees and advisers and a committee structure, which leverages the knowhow and expertise of the best in the membership. It is clear, however, that the members want more from us and I am grateful to the support and enthusiasm that is shown to the WMA. Following feedback and input, there will be some changes and the WMA will now concentrate its focus on the following five areas:

Advocacy - with governments, regulators, media and the wider financial services community to speak up for the sector, voice and represent the interests of our members, promote wealth management and challenge some of the perceptions about the sector Influence - policy and decision makers to the benefit of WMA members and their clients, seeking proportionality and appropriateness, educating about the industry and the unique nature of the retail investment market Research and information – as an aggregator of research, trends and data about our industry and continue to provide guidance, advice and information to our members and early warning systems on regulatory, market and business issues to help them with their business Thought leadership – to lead debate on how the industry should and could respond to emerging changes, regulations and business issues Facilitation –identification and sharing of good practice, benefiting the membership as a whole to enable them to implement good practice and learn about new thinking

In order to achieve its objectives, the WMA will remain agile in working collaboratively with members and key stakeholders, forming beneficial partnerships where appropriate.

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Thought leadership

Research and information

Influence

Advocacy

Facilitation

So what does that mean in practice?

Investment in people, such as new staff members in policy, research and events teams. We also continue to work with our team in Brussels so we are at the coal face on European issues.

Investment in technology – we are putting in a new ‘back office’ CRM system to ensure we know our clients, know their needs, and offer services that are suitable for their needs, which will automate several processes such as event booking.

Increasing our connectivity with our members, through events such as • • • • • • •

More regional meetings; Roundtables; Relevant and good quality seminars; Specific subject or business type forums such as the LLP and HR forums; Half day seminars – ‘the insight series’ – which will include debate on relevant industry issues such as ‘conduct’ and the impact of technology; An Associates Briefing, which will aim to update all Associates on current issues and their impact on wealth management firms; An Associates Committee, which will meet to exchange thoughts, ideas and intelligence to inform the work of the WMA.

Communication, communication, communication • • •

We will be reviewing how we communicate with members, resulting in clearer communications, targeted to each type of member and person within firms.

We will ensure we communicate what we are doing for our members, so they are clear about the value we provide.

We will continue to communicate with members at all levels, on a regular basis, so we have a two way exchange of ideas and feedback and remain relevant to the needs of members.

The sharing of intelligence is extremely important in this very fast paced environment and collaboration and partnership is key.

LIZ FIELD, CHIEF EXECUTIVE, WMA

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The first year of WMA in review Acheived RDR – RMAR returns on commission 8 fees n/a to members.

Achieved Compensation Directive – Allowing National Discretion

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APCIMS became The WMA

October

Dec

2014

2013 Establishment of FCA dedicated Wealth Management and Private Banking Team.

The WMA secured the deletion of article 28a from MiFIR, which would have ended the UK’s system of share trading for individual investors.

One year anniversary of RDR

Budget – Pension and ISA changes improve freedom and flexibility of investment.

Financial crime – Boiler Room flyer and fight back to achieve revised guidance.

The European Parliament election was held

The WMA secure a change in the EU regulation, PRIIPS which now enables retail investors to trade stocks, shares and other investments in real-time.

WSOC launched Wider Share Ownership Council

June M.I.F.I.D – • Elimination of ‘independent’ from definition • Retention of EXO broking • Return of viable ‘advice’ framework • International unit holders 1 year delay (more concession to come?)

• Removing Article 28a.

WMA have also contributed to and influenced a number of other changes and welcome: The establishment of FCA dedicated Wealth Management and Private Banking Team The allowance of AIM shares to be in ISAs

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UCITS iv – FSA writes to the commission about market problems

April

March

FATCA – less onerous requirements on smaller firms

Short selling – naked S/S n/a to members firms

May The TSB float made shares available to retail investors after The WMA’s recommendation in May.

FATCA became active in the UK

2014 The introduction of a Junior ISA The reduction of the burden of what was originally proposed for FATCA, creating less onerous requirements on smaller firms The abolition of stamp duty on AIM shares The abolition of stamp duty on ETFs The introduction of NISAs

WMA members Full members ACPI Investments Ltd Arcrate* ADM Investor Services A J Bell Securities Ltd Albert E Sharp Andrews Gwynne LLP Arbuthnot Latham & Co Ltd Arnold Stansby & Co Ltd Ashcourt Rowan Asset Management Barclays Bank Plc Barratt & Cooke Beaufort Asset Clearing Services Beaufort Securities Ltd Berry Asset Management Plc Blankstone Sington Ltd Brewin Dolphin Ltd BRI Wealth Management Plc Brooks Macdonald Asset Mgmt Brown Shipley & Co Cambridge Investments Ltd Canaccord Genuity Wealth (International) Ltd Canaccord Genuity Wealth Management Cave & Sons Ltd Cazenove Capital Mgmt Charles Schwab UK Ltd Charles Stanley & Co Ltd C Hoare & Co City Asset Management Plc Close Asset Management

110 of our members are wealth management and broking firms that deal directly for the private investor. Over £650 billion of the country’s wealth is under the management of these members. Our current list of full members is as below: Cornelian Asset Managers Ltd Coutts & Co Cunningham Coates Davy Deutsche Bank Private Wealth Mgmt Duncan Lawrie Asset Management Ltd Edwards Securities Ltd EFG Harris Allday Equiniti Financial Services Fiske Plc GHC Capital Markets Ltd Halifax Share Dealing Ltd Hargreave Hale Ltd Havelock Hunter Stockbrokers Ltd Heartwood Wealth Management Ltd Hedley & Company Stockbrokers Ltd HSBC Global Asset Management UK Ltd HSBC Investment Services Hubwise Securities Ltd ICON Personal Share Dealing IM Asset Management Ltd Ingenious Asset Management Ltd Interactive Investor Plc Investec Wealth & Investment Ltd

Associate Members AllFunds Bank Alpha Financial Markets Consulting Altus Ltd Barclays Capital Service Ltd BITA Risk BNP Paribas Securities Services Bovill Ltd Calastone Ltd Campion Capital Canaccord Genuity Ltd Charles Russell Speechlys LLP Chartered Institute for Securities & Investments (CISI) Clearstream Banking SA CoFunds Ltd Comarch UK Ltd ComPeer Ltd CREALOGIX MBA Deloitte LLP Dion Global Solutions (London) Ltd

James Brearley & Sons James Hambro & Partners LLP James Sharp & Co Jefferies International Ltd JM Finn & Co Ltd Julius Baer International Ltd Killik & Co LLP M D Barnard & Co Ltd Merchant Securities Multrees Investor Services Murray Asset Management Ltd Moasic Money Management* Nutmeg Savings & Investment Ltd N W Brown Group Ltd Odey Wealth Management Pershing Pilling & Co Prospect Wealth Management* Premier Asset Management Quilter Cheviot Ramsey Crookall & Co Rathbone Brothers Plc Raymond James Investment Mgmt Plc R C Brown Investment Mgmt Plc Redmayne Bentley LLP Reyker Securities Plc Rossie House Investment Management Rothschild Ruffer LLP

Sanlam Private Investments (UK) Santander Sharedealing Sarasin & Partners LLP The Share Centre Sharemark Smith & Williamson Investment Management Ltd Speirs & Jeffrey Ltd Standard Life Wealth Ltd St James’s Place Wealth Management Stockdale Asset Management* Stocktrade Talos Securities Ltd TD Direct Investing Thesis Asset Management Plc Tilly Bailey & Irvine LLP Tilman Asset Management Tilney Bestinvest Troy Asset Management Ltd Turcan Connell Asset Mgmt Ltd Vartan & Sons Stockbrokers Veritas Asset Management (UK) Ltd Vestra Wealth LLP Walker Crips Stockbrokers Waverton Investment Management W H Ireland Ltd Whitefoord LLP

76 firms are associate members who do not deal directly for the private investor but share the aims of the WMA community. Our current list of associate members is as below:

ETF Securities (UK) Ltd Euroclear UK & Ireland Ltd Financial Services Training Partners FNZ UK Ltd Gibraltar Funds & Investment Association (GFIA) Goal Group Ltd Goldman Sachs International HITEC Hampden Capital Plc Herbert Smith Freehills Howden Risk Partners Investec Capital Markets Interactive Data Investment Software Ltd Jersey Finance JHC Systems Ltd Kinetic Partners LLP King & Wood Mallesons SJ Berwin Knadel Ltd

KPMG LLP Lark (Group) Ltd Lloyd’s Lloyds Banking Group Lombard Risk London Stock Exchange Maclay Murray & Spens LLP Morningstar UK Ltd Morgan Stanley New Access SA Norton Rose Fulbright LLP Objectway Financial Software Oriel Asset Management LLP Oriel Securities Ltd Peel Hunt Peterevans Platform Securities Proquote Ltd Pulse Software Systems Ltd Resources Compliance (UK) Ltd Royal Bank of Scotland – Financial Institutions Group

RPC Sales Kinetics Sentronex Ltd SEI SimCorp Coric Shore Capital Stockbrokers Social Stock Exchange SS&C Technologies Travers Smith LLP Vanguard Asset Management Willis Group Winterflood Securities Ltd Wealth Dynamix Wealth-X WisdomTree Europe Ltd Wolters Kluwer Financial Services

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Report designed by Cicero No responsibility for loss to any person acting or refraining from acting as a result of any material contained in this publication can be accepted by the WMA, the author, publisher or printer. The views expressed by individual contributors are not necessarily those of the Association.

Company limited by guarantee. Registered in England and Wales.

No 2991400. VAT registration 675 1363 26. Published for the WMA

by WordWide London. Copyright WMA 2014.

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22 City Road Finsbury Square London EC1Y 2AJ Tel: +44 (0)20 7448 7100 Fax: +44 (0)20 7638 4636 www.thewma.co.uk Twitter: @wma_uk Members: enquiries@thewma.co.uk Non-members: info@thewma.co.uk