PFP - Spring 2020

Spring 2020 thepfs.org

Gift ideas ADVICE AROUND LASTING POWER OF ATTORNEY AND TAX-EFFICIENT GIFTS

FUTUREPROOF

ABOVE BOARD

INSTRUMENTAL

Key takeaways from the PFS Conference

How the pensions dashboard will beneďŹ t the sector

How the profession is tackling MiFID compliance

01_Cover_PFP Spring 2020_CII Personal Finance Professional 1

30/01/2020 12:49

PFP.Spring20.002.indd 46

28/01/2020 09:38

CONTENTS Spring 2020

12

30

22

38

40

Business Focus Sector Focus 10 Regulatory radar Regulation and legislation updates from the UK and Europe 12-15 PFS Conference Key takeaways from the PFS’s Futureproof Conference 24-29 Technical Connection Examining gifts under a lasting power of attorney 30-32 PFS awards Discovering what made this year’s winners stand out 33 Tech Refresher 42 Tech Q&A

18-19 Pensions dashboards Potential benefits of a clearer view of pensions pots 20-21 Compliance How to assess capacity for loss 22-23 Lessons to learn Key questions advisers should ask in the wake of the Woodford collapse 34-35 MiFID II Analysing how successful the implementation of this regulation has been

News & Opinion 04-05 Opinion Keith Richards reflects on 15 years of the PFS

36-37 Investments Adjusting clients’ expectations in the current economic climate

06-09 News National and regional news

38-39 Property finance Exploring the role of bridging loans

34

44-45 Q2 regional conferences 49 The Big 10 Test your knowledge with our Q&A

3

40-41 Chartered How the PFS is protecting Chartered status

50 President’s blog Adam Owen discusses feedback from members

CONTACT US

Personal Finance Society 21 Lombard Street, London, EC3V 9AH Tel: (020) 8989 8464 Fax: (020) 8530 3052 Chief executive: Keith Richards

Personal Finance Professional is the magazine of the Personal Finance Society (PFS). Members receive a copy as part of their membership. The cost to non-members is £7 per copy.

Members can purchase additional copies at £7 per copy. Views expressed by contributors or advertisers are not necessarily those of the PFS. The PFS will accept no responsibility for any loss occasioned to any person acting or refraining from action as result of the material included in this publication.

Recycle your magazine’s plastic wrap – check your local LDPE facilities to find out how

03_contents_PFP Spring 2020_CII Personal Finance Professional 3

EDITORIAL Communications director: Emma Ann Hughes Editor: Luke Holloway luke.holloway@cii.co.uk Contributing editor: Liz Booth DESIGN Art editor: Yvey Bailey Picture editor: Claire Echavarry Production: Jane Easterman Printing: GD Web Offset For sales and advertising please contact us on pfs-sales@redactive.co.uk or 020 7880 7661

PUBLISHER Redactive Media Group, Level 5, 78 Chamber Street, London, E1 8BL Tel: (020) 7880 6200 ISSN 1754-8055 © Personal Finance Society.

Average total net circulation: 37,000 Reading issues of Personal Finance Professional over the year can be included as part of your CPD requirement (35 hours)

Cover illustration The project twins

30/01/2020 12:17

OPINION

15 FANTASTIC YEARS Keith Richards reflects on what has been achieved in the first 15 years of the Society – and what the future holds 4

T

he PFS celebrated its 15-year anniversary this month, giving us a chance to look back at the revolution of our profession that has taken place in that time.

In 2006, a year after the PFS was established, John Tiner, then chief executive of the Financial Services Authority, announced the retail distribution review (RDR), saying: “While there are certainly firms in the market who meet or exceed the Financial Services Authority’s standards… there are still far too many who fall some way short. In many cases, it may be that the enthusiasm and good intent of senior management has failed to translate into real understanding at working level.”

Six years later, the Financial Conduct Authority (FCA) implemented the RDR, which is still one of the biggest reforms of any financial advice market in the world. Many thought it posed a huge threat to the profession. In 2012, as the implementation date drew near, one highly respected commentator said: “Much of the historic financial advice industry in the UK will be destroyed with major job losses.”

PROFESSIONAL PROGRESS In this context, the progress of the PFS is extraordinary. At the end of 2005, membership of the PFS had reached 22,200, with 3,913 members

qualified to Level 4 Diploma, today’s post-RDR minimum qualification standard. Fast forward 15 years and the PFS is the sector’s leading professional body with more than 40,000 members, 53% of who are now qualified to at least Level 4.

Many have pushed on to higher standards.

In December 2005, Chartered financial planner status was launched to help consumers recognise those advisers achieving high technical competence; by year end 389 early adopters had proudly qualified to use the title. Today, more than 7,000 members are now eligible to use the coveted title.

The challenge that Mr Tiner set in 2006 – to turn good intentions into consistently high professional standards – has been met. This was underlined by a recent piece of qualitative research for the FCA, which noted: “Perceptions of those using regulated advice are highly positive, with strong levels of satisfaction, for both one-off and ongoing regulated advice. A key outcome is the emotional benefit of receiving peace of mind that appropriate action is being taken to meet financial objectives. The value of advice is clear to this group.”

However, we are not resting on our laurels. The last five years have seen even bigger challenges for our profession: the introduction of pension freedoms at breakneck speed in 2015, the hardening market in professional indemnity insurance and the opportunities that come with

thepfs.org | Personal Finance Professional | SPRING 2020

04-05_Opinion_PFP Spring 2020_CII Personal Finance Professional 4

30/01/2020 12:18

OPINION

CEO

KEITH RICHARDS Personal Finance Society

Perceptions of those using regulated advice are highly positive, with strong levels of satisfaction, for both one-off and ongoing regulated advice

TAKING THE INITIATIVE During the last decade, the PFS has also increased its engagement and influence with government, regulators and consumer groups. Recent initiatives include the creation of The Pension Advice Taskforce and resulting Pension Transfer Gold Standard, which is gathering momentum with stakeholders across the market. And 2020 will see the return of FCA speakers to our programme, keen to share examples of good and poor practice around pension transfers.

We are expanding our pro bono programmes and increasing the reach of our My Personal Finance Skills initiative in schools nationwide, as a way of both educating students about personal finance and also showcasing the rewarding careers available in the sector. It is exciting for the future of our profession that we are beginning to attract new generations of advice professionals with a clear benchmark and role within a Chartered profession.

During the next 15 years, I am certain that we will see growth in the numbers of advisers and, together with innovative fintech solutions, we will finally start to address the advice gap. ●

JOIN THE DISCUSSION For more information and to offer your feedback, please visit: PFS member email: membership@thepfs.org Pension Transfer Gold Standard: thepfs.org/ptgs PFS financial planning and good practice: pfspower.org Apprenticeships: thepfs.org/Apprenticeships ScamSmart: thepfs.org/scams Good practice hub: thepfs.org/good-practice

ILLUSTRATION: LUKE WALLER

technological advances such as open banking.

Facing up to these challenges will require the kind of energy and creativity that helped our profession turn the RDR into a success. Most importantly, we will have to use the community that we have created to solve problems together.

In that spirit, 2020 will also see the return of the much-lauded Festival of Financial Planning at Birmingham’s NEC in November. The 2016 event proved popular in uniting the sector, with 3,500 delegates enjoying top-quality continuing professional development while networking in a fun environment.

5

SPRING 2020 | Personal Finance Professional | thepfs.org

04-05_Opinion_PFP Spring 2020_CII Personal Finance Professional 5

30/01/2020 12:18

NEWS

P E R S ON A L F I N A NC E S O C I E T Y

PFS CELEBRATES 15 YEARS AND PLANS FOR THE FUTURE 2020 marks 15 years since the launch of the PFS, prompting the professional body to reflect on past and future developments.

Since being established in 2005 via the merger of the Society of Financial Advisers and the Life Insurance Association, the PFS has evolved into the sector’s leading professional body, with a membership of 40,000 at the start of this year.

Inaugural president of the PFS, Brian Steeples of Turris in Glasgow, said: “The whole sector should be proud of just how far it has come in such a short space of time.

Qualification levels are a stark indicator of how financial advice has moved from an industry into a more trusted profession.”

The PFS offers a comprehensive

6

continuing professional development programme, with full-day events delivered every month in 27 locations across the UK, plus webinars and good practice guides.

In addition, 2020 will also see the return

of the Festival of Financial Planning to Birmingham’s NEC in November. The 2016 event attracted 3,500 delegates and delivered more than 70 breakout sessions.

During the past decade, the PFS has also increased its engagement and influence with government, regulators and consumer groups.

Recent initiatives include the creation of The Pension Advice Taskforce, resulting in the creation of Pension Transfer Gold Standard.

Read our CEO comment from Keith Richards on page 4

INVESTMENT

BREXIT EXPECTED TO BOOST FTSE 100 SHARE PRICES Brexit could boost FTSE 100 share prices, according to 42.4% of 170 financial advisers who took part in a PFS poll in January.

Roughly one in five financial advisers (22.9%) said Brexit will not boost FTSE 100 share prices, and approximately a third (34.7%) were unsure what the UK exiting the European Union will mean for investors in the index.

Keith Richards, chief executive of the PFS, said: “The Conservative Party’s general election victory sent the FTSE 100 to its best day in a year, with analysts hailing it the ‘Boris Bounce’.

“The majority of the FTSE 100’s profits come from outside the UK. A weaker pound is beneficial for some British companies

Tweet Tal k

@SquareMileICR Square Mile’s Jamie Farquhar talking ESG and embracing it into your investment proposition at the @pfsconf in London this week #pfsconf

that sell their products or services outside of the UK, as it allows overseas buyers to get more for their money.

“If the value of the pound falls further, many FTSE 100 companies should therefore receive a boost and, in theory, this should push the share prices up, acting as a hedge against Brexit uncertainty. However, we need to remain mindful that a Brexit deal with the European Union has yet to be struck, and any economic optimism we currently feel may be misplaced.

“It is vital that investors speak to a financial adviser to ensure their investment portfolios are capable of meeting their needs.”

@AlanSense People starting to arrive @RuddingPark for the @Profadviser Multi Asset Roadshow where I will be doing a presentation about the good work @pfsconf carry out educating school children regarding all matters financial

@SlipaczekPro Delighted @ASlipaczek membership officer of London @pfsconf representing @SlipaczekPro at London @pfsconf Q1 Conference #chartered #CPD2020 @CIIGroup

thepfs.org | Personal Finance Professional | SPRING 2020

06-07_News_SM_PFP Spring 2020_CII Personal Finance Professional 6

30/01/2020 12:19

NEWS

T H E N EW S IN N UM B E R S M E N TOR I NG

PFS MENTORING SCHEME ATTRACTS 1,000 PARTICIPANTS Connect, the PFS’s e-mentoring programme, has attracted more than 1,000 mentors and mentees since its launch in the summer.

Connect allows PFS members to form mentorship connections with other professionals at any point of their career and from anywhere across the globe, creating the potential for a truly international and united financial planning profession.

PFS members can register to be a mentor or mentee with

Connect in just a few minutes.

As someone looking for a mentor, the Connect website allows you to familiarise yourself with the programme via a series of articles and videos.

Connect enables the member to tailor their search to find a suitable mentor to help them achieve specific career and personal development goals.

The Connect website allows mentors and mentees to keep in touch, set up

40,000 MEMBERS ARE NOW PART OF THE PFS AS WE CELEBRATE 15 YEARS SINCE THE SOCIETY’S LAUNCH

meetings and devise plans of action, with interactive tools.

To find out more, visit: pfs.org/connect

1,000

MENTORS AND MENTEES HAVE JOINED CONNECT, THE PFS’S E-MENTORING PROGRAMME, SINCE ITS LAUNCH LAST SUMMER

A DV IC E

7

CII REACTS TO MAPS’ NEW STRATEGY The Chartered Insurance Institute (CII) has reacted to the Money and Pensions Service’s (MAPS) launch of a UK-wide strategy to improve the financial wellbeing across the country, stating that it will be “the catalyst for a financial wellbeing movement”. MAPS unveiled a 10-year plan to help people be equipped to plan and enjoy their retirement.

The UK Strategy for Financial Wellbeing has prioritised areas including: making sure

young people get a meaningful financial education; encouraging people into the habit of saving and building cash reserves; making sure fewer people use credit for food and bills; and increasing the number of people who can access debt advice.

Sian Fisher, chair of Insuring Women’s Futures and CEO of the CII, said: “I am pleased the Money and Pensions Service’s UK-wide strategy to transform the country’s financial wellbeing in a decade will

@stettip Just received my invite from @pfsconf to the Graduation Ceremony in London to graduate as a Fellow of the Personal Finance Society in April

@PennyRadioPod Great to see there’ll be more financial advisers going to more schools this year! Keep up the good work @pfsconf and all the people giving their time to make this happen

examine the impact gender has on financial resilience.

“As chair of the Insuring Women’s Futures initiative, I know some of the issues needing to be addressed to improve female financial resilience are deep-rooted.

“As CEO of the CII, I will work with MAPS on how to empower women to come together to talk about their financial life, make the right decisions and take action that will improve their financial future.”

@PFS_HD @WeAreJustUK Jeremy Martin returns to our fabulous @pfsconf regional conference with the energy and bounce we’ve come to expect from him! Welcome back

42%

OF 170 FINANCIAL ADVISERS POLLED

BY THE PFS BELIEVE BREXIT WILL BOOST FTSE 100 SHARE PRICES

45%

OF UK ADULTS UNDERSTAND ENOUGH ABOUT THEIR FINANCES TO PLAN FOR LATER LIFE, ACCORDING TO THE MONEY AND PENSIONS SERVICE

9,024 Twitter followers and counting...

SPRING 2020 | Personal Finance Professional | thepfs.org

06-07_News_SM_PFP Spring 2020_CII Personal Finance Professional 7

30/01/2020 12:19

NEWS

F ORC E S M ON E Y P L A N

PFS PROGRAMME BECOMES AFFILIATE MEMBER OF COBSEO

In late 2019, the PFS’s Forces MoneyPlan initiative was granted affiliate membership of the Confederation of Forces Charities (Cobseo).

Cobseo represents the entire serving and veterans’ community – some six million people and their dependants.

Membership of Cobseo is only open to charities or other organisations whose

primary purpose is to promote and further the welfare and general interests of the Armed Forces community. As such, acceptance of the PFS as an affiliate member is due recognition of the unique role of Forces MoneyPlan and especially the efforts and commitment of our adviser volunteers, without whom this unique and valuable service would not be possible.

In 2020, the PFS looks forward to working with Cobseo to broaden both the scope and impact of Forces MoneyPlan, by helping facilitate direct access to individual member charities that include, among many others, the

Royal British Legion, Help for Heroes and armed forces charity SSAFA. For more information about Forces MoneyPlan, and to express your interest in volunteering for this initiative, visit: www.thepfs.org/forcesmoneyplan

Cobseo The Confederation of Service Charities

P E N S ION S

8

PI PROBLEMS PROMPT 30 ADVICE FIRMS TO EXIT TRANSFER MARKET More than 30 financial advice firms have turned their backs on offering pension transfer advice in the space of just three months, due to problems obtaining affordable professional indemnity (PI) cover, according to the PFS. The Pension Transfer Gold Standard was launched in April last year by the Pension Advice Taskforce and the PFS, the professional body for the financial advice profession.

The Gold Standard is a voluntary code of good practice for safeguarded and defined benefit pension transfer advice, based around a set of principles.

Firms can adopt and promote this standard and principles, so consumers can better understand and find good advice, and be confident they are dealing with a firm that is going beyond minimum requirements when giving financial advice.

By the end of 2019 more than 1,225 advisers had signed up to the standard, but in the final three months of the year

more than 30 firms had pulled out in the space of just 90 days.

The firms that deregistered for Gold Standard stated they were no longer offering pension transfer advice due to restricted access to affordable PI insurance.

The PFS expects the number of firms pulling out of offering pension transfer advice to further increase in the coming

months as the Financial Conduct Authority (FCA) publishes final pension transfer advice rules.

The PFS has re-engaged with HM Treasury and the FCA on the need for a review of PI insurance.

The professional body has also called on members to report poor practice at claims management companies, which it will share with the FCA.

thepfs.org | Personal Finance Professional | SPrING 2020

08-09_News_PFP Spring 2020_CII Personal Finance Professional 8

30/01/2020 12:20

NEWS

C L A I M S M A N AG E M E N T

PFS UNCOVERS EVIDENCE OF POOR CMC PRACTICE The PFS has received 40 complaints about the conduct of claims management companies (CMCs) in less than a week.

Evidence has been uncovered of CMCs issuing blanket calls for cash or escalating the complaint to the Financial Ombudsman Service (FOS) despite a financial adviser having evidence it is without foundation.

One adviser had evidence of a CMC issuing blanket complaints on annuity sales on behalf of clients without bothering to check whether any of what they were alleging even applied in the client’s case.

The CMC alleged that a client was not given the open market option of a joint life annuity or guarantee period, when

the client actually purchased a joint life annuity with a 10-year guarantee period via the open market option.

The adviser, who wished to remain anonymous, said: “The claims management companies should be required to provide evidence of what they allege, as they waste so much time without any responsibility for their allegations.”

Another financial adviser was able to show the CMC how their client was financially better off because of their recommendation.

Despite this evidence, the CMC still referred the complaint onto the FOS, which concluded the advice was suitable.

In January, the PFS announced it was collecting evidence of poor practice among CMCs that will be passed to the Financial Conduct Authority.

9 T E C H NOLO G Y

PFS REACTS TO DATA REFORMS In response to the Financial Conduct Authority and Bank of England announcing proposals for data reforms across the UK financial sector, the PFS has warned data alone will not prevent future consumer detriment.

Keith Richards, chief executive of the PFS, said: “It is vital that the regulator has the right data to inform rules, but data alone isn’t enough to prevent future consumer detriment. It is vital that data is accompanied by human insight to ensure developments in the market are thoroughly understood. Digital breadcrumbs can’t replace the

knowledge gained by speaking to those who assist consumers.

“There is also a danger that a desire to streamline data collection might mean that different assets might be treated as the same, simply to create large ‘buckets’ for counting in a standardised way across the sector. This, in turn, might lead to an oversimplified view of the market.

“I am pleased the regulator will work with firms to ensure data collection is less burdensome. The regulator needs to ensure the market understands how this information will be used.”

SPRING 2020 | Personal Finance Professional | thepfs.org

08-09_News_PFP Spring 2020_CII Personal Finance Professional 9

30/01/2020 12:20

R E G U L AT I O N

WHAT’S ON THE RADAR? Regulatory Radar looks at what the Conservative victory means for new rules

10

‘New year, new me’ – and a new government too, it seems.

With a commanding victory for the Conservative Party in the December 2019 election, we enter the new year with a government vision set beyond the now and tomorrow.

With this reinvigorated focus, there is new legislation coming up on the horizon, both from the green benches and from private members. The new legislation of interest includes: The Financial Services Duty of Care Bill – which seeks to require the Financial Conduct Authority (FCA) to make rules for authorised persons to owe a duty of care to consumers in their regulated activities.

The Pensions [Amendment] Bill – aims to amend the Pensions Act 2004 and the Companies Act 2006 to remove the cap on compensation payments under the Pension Protection Fund and to require the approval of pension scheme trustees and the Pensions Regulator for the distribution of dividends.

FCA CHANGE Aside from parliament, it seems the FCA is also undergoing its own changes with the announcement late last year that Andrew Bailey will be heading to the Bank of England in March to take over as governor from Mark Carney.

Not letting this divert its attention, the FCA has launched a consultation on open finance, to see if it can expand open banking principles to give consumers and businesses more control over a wider range of their financial data, such as savings, insurance, mortgages, investments, pensions and consumer credit. It brings huge potential opportunities and challenges, and we will both contribute to this space and monitor progress as the policy develops.

Shayne Halfpenny-Ray is policy and public affairs adviser of the PFS

PFS ONLINE POLICY CONTENT Please be sure to visit our policy and research online content. Briefings, updates, research papers and much more are available for download at: www.thepfs.org/insight

GETTY / ISTOCK

The Pensions Scheme Bill – aims to introduce: ● A framework for collective money purchase schemes. ● Provisions to enable pensions dashboards. ● New criminal offences for failure to comply with a contribution notice, avoidance of an employer debt, and conduct risking accrued scheme benefits. ● A new requirement for trustees of occupational DB schemes to determine (with the agreement of the employer) a strategy for ensuring that pensions and other benefits under the scheme can be provided over the long term. ● Restrictions on the right to a statutory transfer, unless prescribed conditions are met.

hil the h first fi two bill i b bill d While bills are private members bills and thus are not guaranteed to succeed, the Pensions Schemes Bill is government-sponsored and therefore with their new majority, likely to pass through parliament relatively quickly.

ANDREW BAILEY

thepfs.org | Personal Finance Professional | SPRING 2020

10_Reg_Radar_PFP Spring 2020_CII Personal Finance Professional 10

30/01/2020 12:20

Gain the advantage.

Volunteering for a committee position is the perfect way to elevate your proďŹ le and use your experience to inspire a new generation of professionals.

Join your PFS Regional Committee now by visiting:

thepfs.org/pfsregions

Join your PF S Regiona Commit l tee

Regional Committees support individuals and promote the profession for more rewarding careers and better business.

PFP.Spring20.011.indd 11

29/01/2020 15:00

P F S A N N UA L C O N F E R E N C E

Emma Ann Hughes reflects on the key takeaways from the PFS’s Futureproof Conference, held in Birmingham

12

FUTUREPROOFING THE FINANCIAL ADVICE PROFESSION

thepfs.org | Personal Finance Professional | SPRING 2020

12-15_PFS_Confer_PFP Spring 2020_CII Personal Finance Professional 12

30/01/2020 12:22

H

ow to make sure your business is fighting fit so you can assist your clients no matter what the future holds, was the focus of the PFS’s Futureproof Conference.

Financial advisers gathered at the International Convention Centre (ICC) in Birmingham to hear from the Financial Conduct Authority (FCA), investment experts, government advisers and the PFS about what is on the horizon for the profession and clients.

Here are the five things we learned about what financial advisers need to do to be ready for the years ahead.

1

GET YOUR STRUCTURE RIGHT

In order to futureproof your advice business, Rory Percival, regulatory consultant, said you need to review the way you currently run your firm.

Speaking to a packed Hall One at the ICC in Birmingham, Mr Percival revealed he recently took part in a war of words on Twitter.

An adviser claimed the FCA should sit in client meetings more often to understand how the financial advice process actually works.

But Mr Percival, a former technical specialist at the City watchdog, said he disagreed that the regulator needs to sit in on client meetings.

He said: “I thought to myself – no. The only thing that becomes important at that stage is being clear, fair and not misleading. It is

Rory Percival, regulatory consultant

how the firm operates, before they get into the client meeting – that is the most important thing.

“While for you, sitting with the client is the big, important thing, I would argue that it is what happens before that meeting in terms of firm governance that really matters.”

Mr Percival said it is vital that advice firms regularly review the way they work and question why they are operating in this way.

He said: “My view is most firms don’t do capacity for loss very well.

Who in your firm is accountable for how you do capacity for loss? You need to have individual people who are accountable for pretty much everything you do in your firm.

You are better as a firm if you have individuals who are accountable.

Become a clientcentric business and that will help you be truly futureproofed Debbie Gupta, FCA

When I am accountable for things, I make sure things happen.

“We have all heard about the Senior Managers & Certification Regime (SM&CR). A lot of what I have been talking about with accountability is coming in with the SM&CR, but I would suggest you expand that more broadly and ascribe responsibilities to all individuals across the firm.”

Mr Percival concluded that, to futureproof your advice business, you need to: “Think about your culture and your values. Build in challenge and manage biases within your firm.”

2

13

REVIEW YOUR CHARGES

Debbie Gupta, director of life insurance and financial advice at the FCA, said the regulator is concerned that while a fee for ongoing advice is good for business, “it may be of very little value to the client”.

Ms Gupta urged advisers gathered at the PFS conference to look at how they charge for their services.

She said: “I know this is an emotive subject. We don’t expect advisers to be a charity, but we do expect you to consider the conflicts that arise.

Take charges on ongoing advice. Most advisers that we see are charging a percentage of client assets. This works well for clients building their wealth, but is it right for clients that are withdrawing their assets?”

Ms Gupta said the FCA would → be worried if it was to see

SPRING 2020 | Personal Finance Professional | thepfs.org

12-15_PFS_Confer_PFP Spring 2020_CII Personal Finance Professional 13

30/01/2020 12:22

PFS CONFERENCE 2020

This is Facebook on steroids. You can now have a robo-adviser like one you have never had before Matthew Griffin, 311 Institute

14

longstanding clients priced out of financial advice at the point when they may need it the most.

She said: “Think carefully about where you add value. Professional advice is valuable and increasingly necessary as our environment is evolving. We still see too many firms focusing on the solution they want to provide to the client.

“We want to see a mindset where you ask: what does the client really need and how can I help them achieve that? Become a client-centric business and that will help you be truly futureproofed.”

3

CHANGE THE CONVERSATION

Advisers gathered at the PFS’s Futureproof Conference were also encouraged to think about the way their clients expect them to talk about their investments.

For example, in the early days of environmental, social and governance investment, all the talk was about screening, engagement with senior management and monitoring whether companies were hitting sustainability targets.

Belinda Gan, product manager of global sustainability of Schroders, said this was because this had been the focus of institutional investors who were first to engage with environmental, social and governance investment.

Ms Gan said while institutions still want to know about exclusions, screenings and such like, for financial advisers and retail investors it is less about being bombarded with acronyms and more about bringing it back to the real world.

Iain Richards, head of responsible

investment for Columbia Threadneedle, agreed that disclosure from investment houses in this area needs to change so that advisers can connect their clients’ views with a suitable fund that is in keeping with their beliefs.

Mr Richards said: “People have not got their heads round how to connect the underlying client’s interest with the information that clients want. Platforms want case studies and stories, not just the technical story. The retail investor wants to see that it (the fund) is real and doing something meaningful.”

4

ADVICE BEYOND THE GRAVE

While it may have taken 75 years to get 50 million people to acquire a telephone, it took Pokemon Go just 19 days to achieve that same level of engagement.

Advisers gathered at the PFS conference were told connectivity and digitalisation will accelerate the pace of disruption even more in the future – to days and then hours and minutes.

Every industry, directly or indirectly, is linked to every other industry, meaning seismic shifts in one eventually ripple across them all, creating an accelerating, virtuous cycle of limitless disruption, warned Matthew Griffin, CEO of global futures and deep futures consultancy 311 Institute.

Reflecting on what this could mean for the future shape of the financial advice profession, Mr Griffin, who has worked with all G20 governments, said robo-advice in its current state should not be feared by human financial advisers.

He said: “The FCA is starting to clamp down on robo-advisers. A lot of them are just black boxes and we don’t know how they work.”

But Mr Griffin said advisers need to be aware that human-centric interfaces are emerging and a future challenge or opportunity for the profession is the creation of an AI replica of a human financial adviser.

Technology is working to replicate minds and thought patterns – so in

Matthew Griffin, CEO, 311 Institute

thepfs.org | Personal Finance Professional | Spring 2020

12-15_PFS_Confer_PFP Spring 2020_CII Personal Finance Professional 14

30/01/2020 12:23

Keith Richards, chief executive of the PFS

the not-too-distant future, an AI version of you could be advising clients even long after you have died, said Mr Griffin.

He added: “Digital humans with neural network brains have arrived.

This is Facebook on steroids. You can now have a robo-adviser like one you have never had before.”

Mr Griffin said the emergence of new automation technologies, from avatars to robo-advisers, means that in the next couple of decades, being human would increasingly be a differentiator for clients.

He said: “People want to ask: ‘Why are you giving me that advice?’

At the moment, the AI can only say: ‘That is my advice.’ It doesn’t allow for the questioning of the advice.

“Your clients need you more – not less – because as the rate of change accelerates, people want human beings to make sense of it for them.”

5

THE FUTURE IS BRIGHT – THE FUTURE IS ADVICE

Ultimately, the key takeaway message that ran through this year’s PFS Futureproof Conference is that the future is bright for financial

15 advice, as long as you are equipped and are preparing your clients for the ever faster-changing world.

Keith Richards, chief executive of the PFS, said for the long-term future prosperity of the profession, it is vital that advisers show their value to the wider public.

He urged advisers gathered in Birmingham to engage in pro bono initiatives such as Moneyplan, Forces Moneyplan and My Personal Finance Skills.

My Personal Finance Skills delivers financial education and awareness workshops to schools across the UK. Thanks to financial advisers who signed up to be ambassadors, more than 250 sessions will be delivered to 7,500 pupils this academic year.

But for the 2020 to 2021 academic year, the scheme will reach even more pupils, as 500 sessions have already been arranged.

Mr Richards said: “We need to engage the public in the importance of financial planning in facing the challenges ahead. Many experts predicted the near-extinction of regulated advice due to the Retail

Distribution Review. How wrong they all were. Adviser numbers have increased.

“Advisers have the power to change lives and collectively the profession has the power to shape the future. The PFS aims to be your compass.”

As chair of the conference, Claer Barrett, editor of FT Money, said the future is bright as the need for human financial advice is greater than ever.

She said: “We know we need to invest in advice. We don’t want to do it by ourselves. AI is a solution to filling the advice gap for the mass market but how do I feel about talking to a chatbot? Whenever I buy something on the internet and something goes wrong, I don’t want to talk to a chatbot – I want to talk to someone who will listen to me and my needs.

“More than ever we need an advisory profession that can help us make the right choice.” ● Emma Ann Hughes is communications director of the PFS Spring 2020 | Personal Finance Professional | thepfs.org

12-15_PFS_Confer_PFP Spring 2020_CII Personal Finance Professional 15

30/01/2020 12:23

Spring Mortgage & Protection Roadshow Dates Announced We are delighted to announce that registration is now open for our spring programme of Mortgage & Protection roadshows.

Colchester

10 March

Sutton Coldfield 19 March

Dunblane

31 March

London

11 March

Cardiff

Preston

1 April

Leeds

18 March

24 March

A highly topical and business relevant programme has been created, with sessions delivered by subject specialists to provide insights and inspiration. Programme highlights will include: • Mortgage market overview – technology and economic drivers • Later life lending & vulnerability • A focus on income protection • Regulatory update from FCA • Futureproofing your business • Potential threats to client retention.

Register now to secure your free place!

Visit smp.org.uk/events to view the full programme and register for the location of your choice. Alternatively members can search and register via the PFSEvents app.

The events will run from 09.30 to 15.00. As well qualifying for up to 4.5 hours of CPD, attendance at these events will provide an opportunity to network with your peers and share good practice. Lunch and refreshments will be provided. Please note that some venues have strictly limited capacity so places will be confirmed on a first come first served basis.

PFP.Spring20.016.indd 16

28/01/2020 09:40

FINANCIAL PLANNERS

Passing the business baton onto your children or siblings is certainly one way to solve the succession conundrum, as Liz Booth finds out aking succession plans can be a headache for any financial planner.

Do you sell the business? Do you groom a successor from within or do you look to family members?

Talking to some of those who have passed the business onto family members – siblings, sons or daughters – the first sense is one of relief (mostly for the sake of continuity and ongoing service to clients) but also of enormous pride.

Privately, people talk of the uncertainty attached with wondering whether their child would firstly be interested in financial planning and then secondly whether they are prepared to work with another family member.

Ultimately, however, they all talk with pride that their children will step into their shoes at retirement and as they see their children achieve the necessary qualifications and become consummate professionals.

One such family is the Slipaczeks.

Senior partner Filip Slipaczek grew up on a council estate in Winchester in the 1960s and in 1996, he established the precursor of the family firm as a sole practitioner.

He completed professional studies with the Chartered Institute of Bankers and the Chartered Insurance Institute before becoming one of the first Chartered financial planners.

He is now uniquely Chartered by

examination in three professions.

Filip is also the media officer of the Institute of Polish Jewish Studies; patron of Faith Matters, the country’s leading interfaith charity; and in 2014, he was awarded the Silver Cross of Merit (the Polish equivalent of an MBE) by the President of Poland.

Filip, Max and Alex Slipaczek with Rt Hon Theresa Villiers MP, Secretary of State for the Environment, Food and Rural Affairs

EVV OLVII N G PRA RACTICEE Slipaczek Chartered Financial Planners has also evolved into a Chartered firm. Alex (partner in the firm and oldest son of Filip), who received an MA in finance from the University of Aberdeen, joined the firm in 2012 and went on to achieve Chartered status and then became a Fellow of the PFS in 2018.

Max (partner and youngest son of Filip), is a past vice-president of the University of Essex Students’ Union.

Filip says: “He surprisingly joined the practice in 2014 and is now only one paper away from both Chartered status and Fellowship. Our practice is one of very few financial planning

firms in the UK where two siblings have followed their parent into retail financial services.

“The financial services sector has been tarnished historically by sales targets and mis-selling. By bringing one’s children into the business, they have already been instilled with a family-oriented moral compass. This is reflected in the personalised service both locally in Barnet and further afield, being able to reach out to many of London’s diverse ethnic minorities.

“Children should not be pressurised, but perhaps [only] cajoled into joining if they have an interest and show promise.”

He believes that in a family firm “where there is an established and trusting client bank, children can be gently introduced to ongoing client relationships, without the need to force on them unnecessary and unwarranted sales targets.

“Having an established business with more than 90% recurring income, along with a desire for hard work from Alex and Max, has allowed both boys to progress with their studies during both the working week and outside of work. This has benefited their own career progression.”

Finally, he acknowledges: “In regards to pitfalls, perhaps it is the fact that the family understandably, see less of each other outside of work.” ●

17

Liz Booth is contributing editor of the PFS

Spring 2020 | Personal Finance Professional | thepfs.org

17_Family Financ_PFP Spring 2020_CII Personal Finance Professional 17

30/01/2020 12:23

PENSIONS

Despite several delays, the proposed pensions dashboard is moving closer to realisation.

Steve Webb examines the potential benefits of such consolidation

18

ARE PENSIONS DASHBOARDS FINALLY HERE?

thepfs.org | Personal Finance Professional | spring 2020

18-19_Pensions D_PFP Spring 2020_CII Personal Finance Professional 18

30/01/2020 12:24

I

n his 2016 Budget speech, then-Chancellor George Osborne gave the goahead for the pensions dashboard project, setting the profession a deadline of 2019 for its design and launch. Now, at the start of 2020 with no dashboard in sight, advisers could be forgiven for doubting it will ever happen.

But this would be a mistake. Despite many delays, there does now seem to be some momentum behind the dashboard project. The recently published Pension Schemes Bill will provide legal powers to force pension providers and pension schemes to supply data – an essential prerequisite to any meaningful dashboard.

Meanwhile, the Money and Pensions Service has appointed highly respected industry figure, Chris Curry, to be the ‘dashboard tsar’, driving forward the whole project.

In perhaps two to three years’ time we should start to see partial dashboards that display a limited range of pension information, including state pension, data around pensions created under automatic enrolment and data from some large company schemes.

Even this will have a significant effect on the world of pensions and advice; and more data will be added during the years that follow, often enabling people to be reunited with pension pots they had lost or did not even know that they had. In the early days, the data is likely to be limited to the balance in defined contribution pots and the prospective income from a defined benefit pension, but in time more information – including on charges – is likely to be added.

PENSIONS

Advisers will need to help their existing clients to make careful choices about whether consolidation is the right answer and, if so, where to consolidate

ISTOCK

DELEGATED ACCESS One of the positive features of the dashboard legislation from an adviser point of view is that clients will be able to ‘delegate’ access to their data to a trusted third party. In principle, this should enable the adviser to get a handle on the client’s overall pension position much more quickly than

when it relied on clients bringing in carrier bags of often unopened correspondence from various pension schemes and providers going back across many years.

But the dashboard will only be as good as the data supplied to it. If scheme data is incorrect or missing, then this will be reflected on the dashboard. So, I strongly suspect that one of the first things that will happen once dashboards go live is that it will trigger a flurry of questions as clients see data on the dashboard that they do not understand, or notice that some pensions are missing altogether.

An important job will be to work with clients to go through their work history, identifying what pension rights (if any) they built up with each job and then investigating if this does not tally with the information shown on the dashboard.

Although there will be a central, non-commercial dashboard hosted by the Money and Pensions Service, other organisations such as banks, insurers and fintech companies will be able to host dashboards. There will be fierce competition between these different dashboards to become the favoured site for members, as there are potentially huge commercial advantages to being the dashboard of choice.

CONSOLIDATION We know that individuals often already have a fractured pension history and the advent of automatic enrolment – where every new job can mean a new pension – will make that issue worse. It is human nature to want to tidy things up and to

move everything into one place and there will be plenty of businesses (some of which already exist) that will want to be the destination for those consolidated funds. There will also be plenty of scammers seeing this as a great opportunity to get money ‘consolidated’ into dubious investment vehicles.

Advisers will need to help their existing clients to make careful choices about whether consolidation is the right answer and, if so, where to consolidate. But there will be a big guidance gap for those who currently do not have advisers, who will need help making wise choices once they have a clearer overall picture of their pensions. While not everyone will have enough pensions wealth to make it viable to provide them with fullblown financial advice, the increased engagement in pensions that the dashboard is likely to bring could be an opportunity for advisers wishing to expand their client base, not least to the younger generations.

Having one place where you can see all of your pensions has to be a step in the right direction and the UK is already lagging many years behind countries such as Sweden, the Netherlands and Australia, which have had dashboards of different types for many years. There can be no doubt that the launch of dashboards will stimulate renewed interest among the public in their pension past and their pension future – advisers could be well placed to help them on that journey. ●

19

Steve Webb is director of policy at Royal London

spring 2020 | Personal Finance Professional | thepfs.org

18-19_Pensions D_PFP Spring 2020_CII Personal Finance Professional 19

30/01/2020 12:24

R E G U L AT I O N

TRANSFER TALK The FCA has raised concerns about the sustainability of pension transfer advice but advisers believe it is down to the dodgy minority.

Rory Percival urges prioritising needs over wants

20

PORTRAIT BY LUKE WALLER

W

e are all familiar with the issues around defined benefit (DB) pension transfer advice – unsuitable advice, professional indemnity (PI) cover, continuing Financial Conduct Authority (FCA) supervision and policy developments, among others. Unfortunately, I do not see any quick and easy resolution to these issues.

In my opinion, there is only one way to resolve the issue in the medium term and that is for the advice sector as a whole to raise standards, particularly raising the rate of suitable advice cases.

In time, this will mean the FCA will no longer feel the need to continue its extensive work in this area and the PI cover issues will improve.

But the advice sector will not improve standards until it sees that it is part of the problem. It seems that every adviser or firm I speak to (or read about in the press or social media) believes the problem is down to a few dodgy firms – it’s not us, it’s someone else. I am completely convinced that this is not how the regulator sees it, based on my experience at the

FCA, several speeches and roundtable meetings with the FCA since, as well as the regulator’s update on supervisory findings from December 2018, which highlighted issues around normal firms just not doing their job well enough. n the FCA So, where are the differences between and some (many?) advisers? I would flag three areas where there may be differences: 1. Pensions are for retirement income In the context of pension freedoms, FCA y said: supervision director Debbie Gupta recently ted “The risk here is that people may be distracted ch is from the original purpose of a pension, which to provide them with money when they are no ny longer working.” Yes, the freedoms allow many st options and great flexibility for clients, but first and foremost, clients need an income to live offf e in retirement. Or, as the FCA said: “Good advice should seek to ensure that clients’ income needs are met, that they support their dependents and that they get to keep the lifestyle they have planned for.”

thepfs.org | Personal Finance Professional | SPRING 2020

20-21_Compliance_PFP Spring 2020_CII Personal Finance Professional 20

30/01/2020 12:26

R E G U L AT I O N

This is also about managing longevity and client biases. The FCA flagged that the freedoms involve drawbacks – for example, the temptation to dip into the pension pot – and added: “This is why it is important not only to consider how the client intends to access their pension, but also their behavioural patterns and their attitude to spending.”

The FCA Handbook includes the requirement to consider the client’s “attitude to transfer risk” – their attitude to certainty in retirement. Ms Gupta explained: “If the client is looking for certainty of income for as long as they live, then surely this will steer your advice in one direction [i.e. keeping the DB scheme].”

2. Prioritising needs over wants Generally, a client may want flexibility or to leave money to children, but they need an income for life. Clients may want certain things but suitability, and acting in the client’s best interests, mean that advisers must prioritise needs over wants. Clients may not see it this way, but the FCA said: “We recognise the reality of behavioural biases, that your clients might place more value on a lump of cash now and less value on an income throughout an unknown period of time. However, your role is

In time time, this will mean the FCA will no longer feel the n need to continue its exten extensive work in this area and the PI cover issues wil will improve

to challenge those biases; to help the customer balance their immediate desires with their longterm needs. To help them prioritise what is really important and make the difficult but informed compromises many must make.”

I have talked before about the client’s ‘core secure income’. Sources of core secure income include state pension, DB, annuity, guaranteed third-way products and (not quite so secure) good-quality rental income. If a client has sufficient core secure income to meet not only their fixed outgoings but also money for discretionary spending to broadly maintain their standard of living, then this is great financial position to be in. If the DB scheme is needed for this, keep the DB scheme. If a small annuity top-up is needed, recommend this (Ms Gupta referred to blended solutions).

3. Considering alternative ways of meeting the client’s objectives The FCA Handbook says you need to do this.

For example, does the client have other assets – additional DC pension funds, ISAs, cash savings – that allow them the flexibility they want? If so, recommend this course of action. Indeed, if the client has sufficient core secure income, the other assets can provide real flexibility; whereas with a transfer, flexibility is limited by the need to ensure the fund lasts long enough. A DB transfer should be considered the last-resort way of meeting the client’s objectives and only then if this addresses their needs in preference to the client’s wants.

21

SUMMARY All this adds up to considering the starting point as assuming that a transfer will not be suitable and not to recommend a transfer unless it is clearly in the client’s best interests – a position stated in the FCA Handbook. But Ms Gupta was keen to point out that there are possible parallels with what the FCA says about DB transfers in retirement advice more generally.

The clear example is asking all at- or in-retirement clients about their views on certainty in retirement, to help shape your retirement income advice. ● Rory Percival of Rory Percival Training & Consultancy Ltd

SPRING 2020 | Personal Finance Professional | thepfs.org

20-21_Compliance_PFP Spring 2020_CII Personal Finance Professional 21

30/01/2020 12:27

INVESTMENTS

FALLING STARS Following the high-profile collapse of star manager Neil Woodford’s empire, Dewi John offers some key questions advisers should ask fund managers

U 22

nless you have a particular taste for the macabre, autopsies are never fun. That does not mean they are not necessary – and with the collapse of Neil Woodford’s fund empire, autopsy is certainly needed when it comes to the cult of the star manager.

Many former stars have imploded dramatically in the past 20 years: Rory Powe, who managed the Invesco Perpetual European, stuffed the portfolio with tech and lost more than half its value in a year up to 2001; Anthony Bolton, whose Fidelity China trust lost more than a third of its value in 2011; not to mention the collapse of an entire star manager house – New Star – during the financial crisis. And the list goes on.

When Mr Woodford set up his own firm in 2014, he raised £1.7bn in a fortnight.

Assets rose to £16bn but the whole thing was brought to a sorry end last year following cataclysmic underperformance, mainly through holding illiquid and unquoted stocks.

LESSONS LEARNED What, then, are the lessons advisers can salvage from this wreckage? What questions should you ask fund managers to help avoid this happening again?

1. What is in the portfolio?

Gone are the days when you can look at the top 10 holdings on the monthly factsheet, nod happily at the solid blue-chip names and carry on. These will most likely not be the greatest contributions to risk or return.

For that, you need insight into what’s in the portfolio. Transparency is key.

2. Which stocks are the greatest contribution to risk?

Any portfolio manager will know this. Indeed, it probably keeps them up at night. Ask which stocks are their greatest contribution to risk, how they are defining that risk (it is generally volatility), and what their investment thesis is for holding it?

3. What is your sell discipline?

Understand what a manager’s sell discipline is – and do they stick to it? While many portfolio managers can be good at buying securities, they are often not so good at selling them. Managers become attached to a stock: if it’s performed well, they hope that it will continue to perform; if it’s dropping like a stone, they pray that it will rebound if they just hold their nerve.

A manager will have a standard example of their sell discipline, which they wheel out for presentations. Great. But are there examples that you can determine from the portfolio where they have not done this? And, if so, why have they not – and why have their own risk controls let them get away with it? There may be very good reasons for an exception to the rule, but you need to understand what they are. And if there are too many, you do not have an investment process – the portfolio manager is freestyling.

4. How long does it take to liquidate your portfolio?

This may well be part of a portfolio manager’s internal risk reporting – how long do they calculate that it would take to sell out of the entire portfolio? While there is no standard second-order metric, typically it is for 80% or 90% liquidation. For a large-cap developed-market equity portfolio, both metrics should not be longer than two to three days, since large caps are very liquid.

However, for funds with many billions in assets under management, the liquidation

thepfs.org | Personal Finance Professional | SPRING 2020

22-23_woodford f_PFP Spring 2020_CII Personal Finance Professional 22

30/01/2020 12:28

INVESTMENTS

Gone are the days when you can look at the top 10 holdings on the monthly factsheet, nod happily at the solid blue-chip names and carry on period could be longer, as they would otherwise move the market if they sell everything at once.

There is no guarantee that target liquidation times are actually what happens, particularly in a falling market when everyone is running for the exits, but you will get some idea of how liquid the portfolio is.

5. What is the highest percentage of a stock’s free float you can (and do) hold?

If a manager holds a significant percentage of a company’s shares, the very act of putting money into the company will increase its share price. But the same is true in reverse: once you try selling those shares, the price will likely go into reverse. ‘Pump and dump’ is ethically questionable as an investment approach, but for it even to work, you have to be able to dump.

23

PRECIPITOUS FALL Getting out of a position is no easy task, as Mr Woodford discovered. He held almost a third of estate agent Purple Brick’s shares. That bumped their price up, but then they dropped from nearly £5 in 2017 to just above the initial public offering price of £1. He also held about a quarter of the doorstep lender Provident Financial, which had an even more precipitous fall, from £26 in 2015 to £5.80 two years later.

This liquidity issue is not necessarily the same as greatest contribution to risk. Indeed, if a manager is steadily buying a stock, it may consequently be rising smoothly and not seem that volatile.

None of the above will copper-bottom your fund selection – as we have discovered, there are any number of ways a portfolio can go south. But liquidity is a key issue. ● Dewi John is a freelance journalist SPRING 2020 | Personal Finance Professional | thepfs.org

22-23_woodford f_PFP Spring 2020_CII Personal Finance Professional 23

30/01/2020 12:28

L A S T I N G P O W E R O F AT T O R N E Y

24

thepfs.org | Personal Finance Professional | SPRING 2020

24-29_tech conne_PFP Spring 2020_CII Personal Finance Professional 24

30/01/2020 12:29

L A S T I N G P O W E R O F AT T O R N E Y

USING POWER

WISELY

25

ILLUSTRATIONS: THE PROJECT TWINS

John Woolley of Technical Connection examines gifts under a lasting power of attorney ore and more people these days are executing a lasting power of attorney. This passes power over to those named attorneys to deal with the person’s property and welfare should the individual become incompetent to act for themselves. In this article, we refer to the person who has executed the power of attorney as the donor and the person(s) who have power to act on the donor’s behalf as the attorney(s).

In a number of cases, the donor may be a person whose estate is of such a size that there will be an inheritance tax (IHT) liability on death. In such circumstances, the attorney may wish to take steps, on behalf of the donor, to reduce that liability. The question therefore arises as to whether the attorneys can make gifts and, if they can, what factors should be considered?

Alternatively, the attorney might consider making IHT-efficient investments on behalf of the donor – for example investments that

qualify for IHT business relief once owned for two years. Although the issues here are not as complicated as those that apply to gifts, there are still important considerations that need to be taken into account.

Unfortunately, space does not permit us to cover this aspect in this article.

Before we examine the rules on gifts in detail, it is important to consider three important points: (i) In this article we look at the position of attorneys – the same principles apply to deputies – people appointed by the Court of Protection (CoP) to look after the financial and welfare decisions of others. (ii) Only attorneys who have power to act in relation to the donor’s property and financial affairs can make gifts. This will not apply to attorneys appointed only to make health and welfare decisions. (iii) Different rules apply to powers of attorney in Scotland. We cover this briefly below. → SPRING 2020 | Personal Finance Professional | thepfs.org

24-29_tech conne_PFP Spring 2020_CII Personal Finance Professional 25

30/01/2020 12:29

L A S T I N G P O W E R O F AT T O R N E Y

1

THE ABILITY TO MAKE GIFTS

In the light of some recent judgments by the CoP, the Office of the Public Guardian for England and Wales updated its legal guidance for professional deputies and attorneys on making gifts of a protected person’s property.

The new guidance is included in Public Guardian practice note PN7 updated on 18 January 2018. It does not make any new rules but clarifies the position on gifts and confirms that the power to make gifts by an attorney (acting under a lasting power or an enduring power) or a deputy is very limited.

1.1 Best interests of the donor It is a fundamental requirement of the law – section 4 of the Mental Capacity Act 2005 (MCA 2005) – that any action taken by an attorney must be in the ‘best interests’ of the donor.

This includes the issue of making gifts – see 1.7 below.

Because people’s circumstances vary so much, the bestinterests test is a subjective one.

26

1.2 What is a gift?

First, it is necessary to consider the meaning of ‘gift’, as it can have a wide ambit. A gift will occur when an attorney transfers ownership of money, property or possessions from the donor to other people, without full payment in return.

A gift can include: Using the donor’s property to create a trust.

Selling a property for less than its market value.

Making an interest-free loan out of the donor’s funds – here the waived (lost) interest counts as a gift.

Redirecting an inheritance received by the donor using a deed of variation.

1.3 The general rule The general rule, covered in 1.5 below, is that attorneys can only make gifts on behalf of the donor: in some limited situations as set out in 1.5; and if the value of each such gift is not unreasonable having regard to all the circumstances and, in particular, the size of the donor’s estate.

Particular care needs to be taken if an attorney is thinking of making a gift from the donor to themselves. Here, there is an obvious conflict of interests

For any gifts not covered by the statutory exceptions (1.5 below) or de minimis exceptions (1.8 below), the attorney needs to apply to the CoP before proceeding with the gift. The CoP has the power to either approve or refuse an application.

limits imposed on an attorney in making a gift). If the attorney considers that the donor has capacity to decide whether to make a gift, records should be kept of the steps taken to justify that view, in case of later challenge.

However, an attorney must still use care and caution even if an apparently mentally capable donor decides to make a gift. If a substantial gift is involved, the attorney would be advised to seek independent advice or arrange for a mental capacity assessment (under MCA 2005), or both.

If the donor lacks capacity, then any gift that is to be made will need to be made by the attorney.

1.4 Donor’s capacity The overriding principle of the MCA 2005 is to protect the right of an individual to make their own decisions whenever it is possible to do so. Before making a gift, an attorney must therefore consider the extent to which the donor can take part in the decision to make it.

If the donor has the capacity to make a gift, then they should normally make the gift themselves (because of the

1.5 When can gifts be made by the attorney?

An attorney is only authorised under the legislation to make gifts of the donor’s property in the limited circumstances permitted by section 12(2) of MCA 2005.

This states: (2) The [attorney] may make gifts… (a) on customary occasions to persons (including himself) who are related to or connected with the donor, or

thepfs.org | Personal Finance Professional | SPRING 2020

24-29_tech conne_PFP Spring 2020_CII Personal Finance Professional 26

30/01/2020 12:30

L A S T I N G P O W E R O F AT T O R N E Y

(b) to any charity to whom the donor made or might have been expected to make gifts, if the value of each such gift is not unreasonable having regard to all the circumstances and, in particular, the size of the donor’s estate.

(3) ‘Customary occasion’ means… (a) the occasion or anniversary of a birth, a marriage or the formation of a civil partnership, or (b) any other occasion on which presents are customarily given within families or among friends or associates.

(4) Subsection (2) is subject to any conditions or restrictions in the instrument.

In short, to qualify for the statutory exception, any gift made by the attorney must be: - To a person related or connected to the donor.

- Made on a customary occasion.

- Be of reasonable value.

For attorneys acting under an enduring power of attorney, similar, albeit slightly narrower, exceptions apply and are detailed in paragraph 3(3) of Schedule 4 to the MCA 2005.

1.6 Gifts that are reasonable Often the most difficult point will be whether the gifts are reasonable. This expression is not given a definition in MCA 2005 and so much will depend on the circumstances.

However, the Office of the Public Guardian provides general guidance on the factors that need to be considered in this respect. These include: The effect of the gift on the person’s financial situation.

This extends to not only their current and future income, assets, capital and savings but also their present and future financial needs.

Is the gift in the person’s best interests? (see 1.7 below) Are all members of the family being treated equally? If not, is there a good reason for this?

Whether the attorney could be considered to be taking advantage of their position (such as by making gifts only to themselves or their family).

The degree to which the donor and the proposed recipient of the gift are connected or related.

The donor’s previous history of gifting and The contents of the donor’s Will – this is indicative of the donor’s wishes.

1.7 The best interests test A decision on the donor’s best interests is different from considering what the donor would decide if they had capacity. Thought needs to be given to: The donor’s past actions in making gifts (or loans) of a particular size and on a habitual basis before they lost capacity.

The donor’s life expectancy.

The possibility that the donor will have to pay for care costs or care-home fees in the future.

The amount of the gift – in particular, the gift should be affordable and not exceed what would be normal on a customary occasion.

The extent to which any gifts might interfere with the inheritance of the donor’s estate under their Will, or without a Will if one has yet to be executed and The impact of IHT on the person’s death.

Particular care needs to be taken if an attorney is thinking of making a gift from the donor to themselves.

Here, there is an obvious conflict of interests and consequently more chance of the attorney being called to account for their actions.

1.8 Gifts and IHT planning While an application to the CoP will usually be required if the proposed gift is outside of the attorney’s statutory authority, following the case of MJ and JM and the Public Guardian [2013] EWCOP 2966, the CoP recognises that there are exceptions to this general rule. These de minimis exceptions apply when the statutory authority would be infringed in such a minor way that it does not justify a court application.

The de minimis exceptions cover the annual IHT exemption of £3,000 and the annual small gifts exemption of £250 per person, up to a maximum of (say) 10 people in cases where:

27

(a) The person has a life expectancy of less than five years (b) The individual’s estate is worth more than the nil rate band for IHT purposes (currently £325,000). (c) The gifts are affordable, taking into account the donor’s care costs, and will not adversely affect their standard of care and quality of life. (d) There is no evidence that the person would be opposed to gifts of this value being made on their behalf.

However, being able to gift these small amounts without the permission of the CoP does not mean that an attorney can carry out more substantial IHT planning without the CoP’s permission – even if the gift would be covered by a different IHT exemption.

In McDowall and others (executors of McDowall, deceased) v Inland Revenue Commissioners [2003] SPC00382, an attorney appointed under a Scottish general power of attorney (which, under Scots law, survived the donor’s incapacity) made substantial unauthorised gifts from the incapable donor’s estate during the seven years before the donor’s death. The Special Commissioners held that the unauthorised gifts were voidable, on the basis that they could have been ratified by the donor before his death if he had had capacity. As a result, immediately before his death, the donor’s estate included the right to have the unauthorised gifts set aside and, for IHT purposes, this → SPRING 2020 | Personal Finance Professional | thepfs.org

24-29_tech conne_PFP Spring 2020_CII Personal Finance Professional 27

30/01/2020 12:30

L A S T I N G P O W E R O F AT T O R N E Y

28

right was equal in value to the gifts themselves.

The unauthorised gifts were therefore ineffective for IHT purposes and their value was added back into the donor’s IHT estate on death.

A power of attorney in Scotland is very strictly construed and attorneys are only authorised to act within the powers stated. If the power of attorney does not expressly contain a power to gift, then no gifts can be validly made.

Under English law, as we note above, restricted gifts are permissible under section 12(2) MCA 2005 and the CoP can authorise gifts outside of those permitted by section 12(2) of the MCA 2005 (see below).

However, despite the differences, it is thought that the result in the McDowall case is likely to have been the same under English law (whether made under a lasting power of attorney or a registered enduring power of attorney).

So, a financial consequence of the attorney making gifts outside of their authority is that theoretically the value of the (voidable) gift will be aggregated with the deceased’s estate for IHT purposes (although the issue will probably only be relevant if the validity of the gift is queried).

Further, if the unauthorised gifts are challenged (perhaps because the recipients of the gifts are not beneficiaries under the deceased’s Will), then they may need to return the gifts to the deceased’s estate.

There could be many practical problems with recovering gifted sums, and this is certainly not a position in which attorneys should put themselves.

1.9 Gifts to a trust The ability of an attorney to make gifts is restricted to gifts to “persons who are related to or connected with the donor”. If the view is taken that a trust is not a person (although technically the gift is to trustees of the trust), an attorney should not make gifts to trusts without prior approval from the CoP. This applies equally to situations where the donor will have an interest in or retain rights under the trust arrangement.

It should also be remembered that for these persons (although not for IHT purposes), the making of an interestfree loan is deemed to be a gift of the interest waived (see 1.2) and this would therefore also preclude an attorney from entering into ‘loan-only’ trust arrangements on behalf of the donor without prior CoP approval.

1.10 Special cases It should be apparent that if an individual lacks capacity and there is likely to be a substantial IHT liability on their death, the only option is to make an application to the CoP for authority to make a substantial gift.

Historically, a key difficulty with such applications has been how to argue that a substantial gift of the donor’s funds can in any way be in their best interests, as required by section 1(5) of the MCA 2005. However, where the incapacitated person is very wealthy, and it is certain that

the proposed gift can be made without jeopardising their current or future financial position, the question arises as to why they should be denied the right to make gifts for IHT-planning reasons just because they are incapacitated?

The recent CoP case of In the matter of JMA ([2018] EWCOP 19) demonstrates that these types of application can succeed. The application was for various gifts totalling £7m made with a view to reducing the IHT liability on the incapacitated person’s (JMA’s) £18.6m estate. The gifts included a £6m gift to the applicant himself – JMA’s son and attorney, who was also the main beneficiary of his mother’s (JMA’s) estate.

The judge took into account a variety of factors including the affordability of the gift, JMA’s life expectancy, her family circumstances and the source of the wealth.

In dealing with the concept of best interests, the judge adopted the usual ‘balancing exercise’ approach of weighing the factors in favour of and against making the gifts, declining to treat tax mitigation as a pro or con in its own right.

While this was an unusual case, it does demonstrate that bringing such applications before the CoP should not be dismissed simply because the tax savings will be enjoyed by others.

1.11 Retrospective approval If an attorney makes a gift that is beyond the scope of their powers (and for which approval should therefore have been sought) and they subsequently discover their oversight, they can apply to the CoP for retrospective approval. Sometimes these applications are voluntary, but sometimes they occur because of an investigation by the Office of the Public Guardian (which has powers to investigate if it has concerns – see 1.14).

Where gifts are disallowed on a retrospective application, it is likely that the attorney will be ordered to repay the money personally. Depending on the facts of the case, the court may also order the removal of the attorney.

1.12 What if the power of attorney expressly permits gifts?

Before the power of attorney can be used, it must be registered with the Office of the Public Guardian. If the power contains an invalid provision – such as one that permits the attorney to make gifts that are outside of their statutory remit – the provision will be invalid and will need to be removed before the power can be registered.

Previous decisions on severance applications by the Public Guardian provide some insight on whether or not words will need to be deleted: In Re Barac [2013] MHLO 142 (LPA), the words “After having taken full regard for my financial welfare and security I want my attorneys to take sensible steps to protect my estate from the effects of taxation and be able to create trusts where beneficial” were severed on the ground that they contravened section 12 of the MCA 2005.

thepfs.org | Personal Finance Professional | SPRING 2020

24-29_tech conne_PFP Spring 2020_CII Personal Finance Professional 28

30/01/2020 12:30

L A S T I N G P O W E R O F AT T O R N E Y

1.14 The impact of making an unauthorised gift To minimise the likelihood of a challenge, attorneys should make sure that the donor’s money and property are kept separate from their own or others. They should also keep a record of transactions made on the donor’s behalf, particularly if the attorney lives with the donor and shares any costs or bills.

Challenges are most frequently made by those who have ‘missed out’ as a result of the attorney’s gift, for example, a relative who would have otherwise benefited under the donor’s Will, or even perhaps HMRC because of a reduction in an IHT liability on the donor’s death.

If gifts are made that go beyond the attorney’s authority without prior approval from the CoP, the Office of the Public Guardian may: Apply to the CoP to have the attorney removed.

Apply to the CoP to suspend the attorney and to freeze the accounts of the donor for their protection.

Instruct the attorney to apply to the CoP for retrospective approval of the gift (only in circumstances where the Office of the Public Guardian considers that such an application would have a reasonable chance of success).

Ask the attorney to arrange for the gifts to be returned.

29

Before making a gift, an attorney must therefore consider the extent to which the donor can take part in the decision to make it

Ultimately, the CoP may refer the matter to the police or other appropriate authorities. This may result in a court hearing, where the attorney would be expected to go to explain their actions. The judgment may be reported and the anonymity of the attorney may be lifted. Legal action may be authorised against the attorney to recover the gifts or their monetary value.

SUMMARY However, in JG (Case No. 12911940), the court found that the words “I would like my attorneys to consider Thomas G (my son) as my main priority when making decisions” did not prevent the document from being registered, as they constituted a simple expression of preferences that did not in any way bind the attorney.

The same stance was taken in DH (Case No 12911905), where the words used were: “I would like my grandchildren to be each given £1,000; I would like any funds left over to be equally shared between my children S, P and C.” 1.13 Deprivation of assets When assessing whether a resident should contribute towards their care costs, the local authority can look for evidence of cases where there has been deliberate so-called deprivation of capital and assets. This will, in general, include cases where an attorney has made a gift on behalf of a donor if that gift was made with the intention of avoiding local authority care charges.

As will hopefully be appreciated, the ability for an attorney to make gifts on behalf of a donor is limited.

The position in relation to making IHT-efficient investments (not gifts) is more optimistic but there can still be complications.

This highlights the importance of implementing IHT planning sooner rather than later on the (incorrect) assumption that this can happen under a lasting power of attorney. If an attorney does propose to make gifts that are not covered by the statutory or de minimis exceptions, prior approval of the CoP must be sought before such gifts are made. ● John Woolley of Technical Connection/St. James’s Place

For further information on financial planning with trusts, read John Woolley’s book, Financial Planning with Trusts 2019/20, available from Claritax: www.claritaxbooks.com SPRING 2020 | Personal Finance Professional | thepfs.org

24-29_tech conne_PFP Spring 2020_CII Personal Finance Professional 29

30/01/2020 12:30

AWA R D S

30

MEET THE WINNERS inning the PFS award for Outstanding Consumer Engagement came as something of a surprise to Robin Melley, Chartered financial planner at Matrix Capital.

The award followed the company’s successful launch of a video animation, which Matrix Capital created and then gifted to Citizens Advice as part of its volunteering work under the PFS MoneyPlan programme, to help raise awareness of vulnerability and how to combat financial abuse.

Mr Melley sees the award as recognition for the team in developing the video and is extremely proud to have received the award on their collective behalf.

“I have purposely developed strong links with the PFS to help play a part in developing financial planning and financial advice from being known as an ‘industry’ to a true

‘profession’ that stands proudly alongside all other professions such as medicine, law, accountancy and architecture,” he says.

“Delivering my first critical-illness cheque and then my first death-claim cheque, both early on in my career, showed me the tremendously positive impact that financial planning and advice can have on the lives of ordinary people.

This has been reinforced many times since.”

However, he stresses: “Change in people’s lives often creates vulnerability; winning large amounts of money, a bereavement, a change of health are all examples. When someone is vulnerable, they need safeguarding and supporting first and foremost; and then professional advice from a trusted adviser who understands

thepfs.org | Personal Finance Professional | SPRING 2020

30-32_PFS Awards_PFP Spring 2020_CII Personal Finance Professional 30

30/01/2020 14:31

31

Liz Booth meets winners of the Personal Finance Awards to discover what made them stand out from the crowd Robin Melley

them and their family circumstances.

“Being a financial planner is a privilege because you are often the only adviser who is allowed to get so close – you have to fully understand their circumstances and be able to guide them through sometimes difficult times.”

This approach lies behind the video, which aims to encourage vulnerable people to seek advice but also, says Mr Melley, to spread the word among financial planners of the value of helping vulnerable people at a time of crisis.

Looking ahead, Mr Melley concludes: “I would encourage any young person who wants to develop a meaningful career that is endlessly challenging and one that creates significant value for people, to join the profession of financial planning.

“The aim should be to become a Chartered financial planner from the outset. There are certain hallmarks to being a professional; having a firm foundation of technical competence and capability demonstrated through the attainment of a professional qualification is vital.”

TEAM PLAYERS Entering awards is about benchmarking themselves against the very best, says the team at VWM Wealth.

Led by managing director Lisa Johnstone, VWM Wealth scooped the PFS’s Chartered Financial Planning Firm of the Year award.

Ms Johnstone explains: “We see the PFS as the pinnacle in terms of standards. When we enter these awards, we are talking to people we really respect and we are → SPRING 2020 | Personal Finance Professional | thepfs.org

30-32_PFS Awards_PFP Spring 2020_CII Personal Finance Professional 31

30/01/2020 14:31

AWA R D S

Lisa Johnstone

32

benchmarking the firm against gold standards.

“We want to be able to test what we are doing and the best way to do that is to enter awards with a professional body. It allows us to measure our achievements and our goals, and to see where we have got to. It also encourages everyone in the firm to work together to achieve those goals,” she says.

The Glasgow-based firm is well used to entering the awards both as a group and as individuals. Ms Johnstone herself won the Chartered Financial Planner of the Year award in 2015, while her fellow directors have also been recognised – Grahame Hopper scooped Paraplanner of the Year and David Thomson has been Investment Adviser of the Year.

VWM Wealth as a firm is also committed to driving standards through the entire team and actively encourages all staff to improve their professional qualifications. All its advisers are Chartered.

“We have really bought into Chartered status as a gold standard,” says Ms Johnstone.

VWM Wealth is a company with a great future, she believes, with a team that is passionate and committed.

The team completed a management buyout in January 2019, but founder Ken Welsh retains a key role as chairman, helping plan strategy and leaving day-to-day management to the team.

“It means we have sorted succession for the business and have the ability to give our clients security and peace

We see the PFS as the pinnacle in terms of standards. When we enter these awards, we are talking to people we really respect and we are benchmarking the firm against gold standards of mind that we will be there for them into the future,” says Ms Johnstone.

The team works with some 90 families and that sense of continuity and personal service is very much a crucial part of the offering, she adds.

“Mentoring is key – we were mentored ourselves and now want to do the same for others. We pride ourselves on our levels of service and the depth of our relationships with our clients – we want to pass that work ethic onto the next generation too.

“We are a winning team.”

MAXIMISING OPPORTUNITIES Winning the prestigious Chartered Financial Planner of the Year award was much more than a professional accolade for Gemma Siddell, a director at Eldon Financial Planning.

She has also been beating her own personal challenges, battling postnatal depression, before returning to work and managing to improve on her professional qualifications and rise through the business ranks.

Ms Siddell is well used to winning awards – she previously scooped the PFS Paraplanner of the Year award back

Gemma Siddell

in 2013 and her firm Eldon won the Chartered Planning Firm of the Year prize in 2019.

But it is not just about winning awards, or even gaining qualifications.

For Ms Siddell, the driver is “being able to provide a holistic service to clients and helping them live the best lives possible”.

Ms Siddell believes that she has been helped personally by being able to get involved in helping others. “Coming back to work really helped me – I was very lucky in that my husband was able to step back at work to become a stay-at-home dad and allow me to return to work at my own pace.”

Like all working parents, they have learned to juggle the home-work balance but Ms Siddell really believes it has allowed her to become a better and more rounded professional.

Ms Siddell believes the award encourages the whole team to look ahead. Not only are they working on succession planning but they are also working on improving standards among staff. As they recruit, they encourage joiners to go for Chartered status.

“We have several younger team members working towards Chartered as we speak,” says Ms Siddell, “and we build through training and gradual exposure to clients as they qualify.”

For herself, Ms Siddell is in a good place once more, feeling confident about the future and enjoying family life.

Entering the award gave her time to reflect on what is important to her professionally. She feels relaxed and confident about the future and eager to share her experience with others in the profession, hoping to build an even stronger profession for the future. ● Liz Booth is contributing editor of the PFS

thepfs.org | Personal Finance Professional | Spring 2020

30-32_PFS Awards_PFP Spring 2020_CII Personal Finance Professional 32

30/01/2020 14:31

TA X

G

ift Aid is a scheme that allows charities and community amateur sports clubs to claim from HM Revenue & Customs the basic rate of tax their donors have paid on their money gifts. The net effect is to increase the value of donations by 25%.

EXAMPLE - PETER Peter has £42,500 of taxable income in 2019/2020, so is a higher rate taxpayer. He wishes to make a Gift Aid payment of £2,500.

First, tax relief on a Gift Aid payment works by increasing the basic rate limit, for the tax year in which the payment is made, by the grossed-up amount. If the payment is carried back, this will apply to the previous tax year.

Second, the position in the case of Peter would be as follows: (i) The gift is treated as made after the deemed deduction of basic rate (20%) income tax. (ii) The gift of £2,500 is grossed up by the basic rate tax treated as paid by Peter on his payment, meaning it is divided by 0.8. The grossed-up amount would therefore be £3,125. (iii) The basic rate tax limit (£37,500 for 2019/2020) would be increased by £3,125 to £40,625 (the basic rate limit marks the point after which higher rate tax is payable). The higher rate tax limit (£150,000) can be similarly increased in appropriate circumstances.

GIFT AID Technical Connection explain how the Gift Aid scheme allows increased donations PETER’S EXAMPLE He has £42,500 taxable income.

Peter pays £2,500 Gift Aid BEFORE £42,500 taxable income Tax = £9,500 AFTER £42,500 taxable income Tax = £8,875 Gift Aid to charity = £625 (20% of £3,125) Reduction in tax to client = £625 (20% of £3,125) Total tax payable = £9,500 less £625 = £8,875 Saving: £625

(iv) The effect of the increase in the basic rate limit for Peter is that £3,125 of income that would otherwise be taxed at 40% is taxed at 20%. This means that tax relief is available on £3,125, which equals £625. The rate of tax relief on the £2,500 Gift Aid payment is therefore 25%. (v) After extending the basic rate tax band/higher rate tax band, a tax recalculation is carried out, which means that overpaid income tax and/ or capital gains tax can be recovered.

If the amount treated as deducted at basic rate exceeds the donor’s income tax and/or capital gains tax liability for the year in question, the donor suffers tax equal to the tax on the excess. ●

33

Technical Connection

Tax relief on a Gift Aid payment works by increasing the basic rate limit

Spring 2020 | Personal Finance Professional | thepfs.org

33_Tech Refreshe_PFP Spring 2020_CII Personal Finance Professional 33

30/01/2020 12:38

R E G U L AT I O N

A MIFID II MEETING THE CHALLENGES OF

34

dvisers should brace themselves to face a “challenging” year as they strive to comply with the Markets in Financial Instruments Directive II (MiFID II), finance expert Jeffrey Mushens warns. He urges IFAs to tackle two major hurdles – costs and charges for clients, and issues relating to product governance and target markets.

Mr Mushens, technical policy director at The Investing and Saving Alliance (TISA), says: “The two issues pressing in 2020 are costs and charges reports for clients, and issues relating to product governance and target market reporting.

“Costs and charges reporting continues to be hard, particularly for financial advisers advising clients on products from a wide range of asset managers. This year will see the first full year for cumulative effect of charges on returns reporting. This is supposed to be since inception of the relationship, or since MiFID II, whichever is the latest. The TISA guide on cost and charges sets out how this should be tackled, but this is an area of debate and one where the European Securities and Market Authority (ESMA) clarification is sought. For many firms this could be a system build requirement.”

He continues: “The other area of MiFID II, which will see a lot of attention in 2020, is reporting on the target market.

“MiFID II reporting continues to be hard, because there are so many underlying moving parts – fund charges, cash inflows and outflows, switching, and a multiple of assets held. So, while we expect the development of tools to aggregate and simplify reporting, 2020 will continue to be a challenge for firms and advisers.”

As advisory firms strain to comply with MiFID II, Aamina Zafar examines the difficulties and considers the likelihood of a MiFID III

ADMINISTRATION BURDEN AJ Somal, Chartered financial planner for Birmingham-based Aurora Financial Planning, confirmed that MiFID II has

increased the administration burden on his business.

Mr Somal says: “Consistency in receiving standardised information from fund managers is proving difficult, but we are trying to get as much information as possible from relevant parties in a timely manner to communicate effectively with our clients.”

These comments follow the news that a large number of firms notified the Financial Conduct Authority (FCA) after they had filed inaccurate transaction reports in the first year of MiFID II. Recently, the ESMA asserted that there was a sizeable deficit in the quality, timeliness and completeness of MiFID II data submission.

Chartered financial planner Martin Bamford believes that problems with MiFID II are rooted in its poor design.

Mr Bamford, director of client education at Surrey-based Informed Choice, says: “MiFID II was poorly designed and executed. Whenever the regulator creates

thepfs.org | Personal Finance Professional | SPRING 2020

34-35_MiFID II A_PFP Spring 2020_CII Personal Finance Professional 34

30/01/2020 12:38

R E G U L AT I O N

The other area of MiFID II, which will see a lot of attention in 2020, is reporting on the target market something relevant for larger companies, including insurers and fund providers, it will always be terrible in translation for smaller firms. A better approach would be for regulation to be designed based on appropriateness and impact, with specific and proportionate legislation for small adviser firms.”

MINIMISING THE IMPACT However, it has not been all doom and gloom. Ricky Chan, director and Chartered financial planner at London-based IFS Wealth & Pensions, says his firm has managed to minimise any impact from MiFID II thanks to investment platforms, such as Transact, which have been helpful in producing costs and charges disclosures that are sent to clients.

He adds: “Our impact has been minimal but could have been a lot worse had we needed to compile all the fund costs data ourselves. This is because small firms just don’t have the time or resources to compile and aggregate this data accurately and in a timely fashion. In addition, clients are already overloaded with information and numbers. MiFID II, with the best of intentions, just makes this worse by breaking down costs further. There have been some funny numbers appearing, such as negative costs, which is clearly a lot of nonsense and just confuses the clients.”

MORE TO COME? Just when the adviser community had barely got to grips with MiFID II, there is now growing speculation of a possible MiFID III. Kay Swinburne, who was a Conservative MEP and vice-chair of the European Parliament’s Economic and Monetary Affairs Committee until June, says Brussels will probably overhaul parts of MiFID II following a public consultation, which is due to be published in the coming weeks.

She adds that the next iteration of the rules could now land sooner than most had expected, due to Brexit.

Daniel Elkington, Chartered financial planner for Peterborough-based MT Financial Management, says: “On MiFID III – I can see this being conduct-led, to lead the UK to comply with EU rules in a manner that makes it very difficult for them to also comply with US rules. The US is going very much towards a 1990s-style sales-led culture and regulating to ensure that this transactional conduct continues, arguing that smaller institutions are harder to regulate, and less financially viable than the big banks (whose collapse in 2008 shut down the global system). The EU is instead arguing that conduct on an individual level is extremely important. From a regulatory standpoint we have a standoff betwixt perceived insecurity and perceived immorality.

“Not only may the advice profession be caught between US and EU regulators competing for Prime Minister, Boris Johnson’s hand in colloquy, but it may also be caught in a dispute between the regulator and the government due to the probability that the FCA would very much like to continue down the EU regulatory track, while the government will want a deal with the US to prove the concept of ‘global Britain’.

“From our experience with British Steel however, the FCA is likely to fail to do anything until it is too late and then blame it on the advice profession when the MPs start to notice that the outcomes achieved are terrible.”

However, Kusal Ariyawansa, a Chartered financial planner at Manchester-based Appleton Gerrard, believes IFAs should not panic at any speculation of a possible MiFID III. He says: “As an adviser, it’s best to ignore the ‘might happens’ and focus on the here and now. Same with Brexit – whatever happens, we’ll be looking after our clients’ finances so will have to deal with things as they happen.” ●

35

Aamina Zafar is a freelance journalist

SPRING 2020 | Personal Finance Professional | thepfs.org

34-35_MiFID II A_PFP Spring 2020_CII Personal Finance Professional 35

30/01/2020 12:39

INVESTMENTS

Emma Ann Hughes explains why income seekers must adjust their expectations

36 ouble-digit returns have become stuck in our memories but as the 2020s get underway, it is important to remember that this rate of income is the exception, not the rule.

Across a broader sweep of history, base rates have stayed far closer to where we are today.

The years since the 2008 to 2009 global financial crisis have been difficult for income seekers and investment experts expect this is unlikely to change in 2020, so it is vital for financial advisers to adjust their clients’ expectations.

This is because low interest rates are likely to persist, limiting the income on offer from so-called safe assets and meaning cash and government bonds may no longer compensate for inflation.

Rupert Rucker, head of income solutions at Schroders, says: “We live in a world where record low interest rates and years of asset purchases by central banks have led to ultra-low bond yields.

“This means that the lower-risk investments and savings accounts that helped produce an income for previous generations simply do not offer high enough returns to grow our money.

“In developed markets in particular, rates of inflation are higher than deposit rates, meaning the value of cash savings is actually being eroded.”

LOW INTEREST-RATES In 2019, many central banks, such as the US Federal Reserve (Fed), cut interest rates rather than raised them.

This low interest-rate environment looks set to persist in 2020.

As a result, Mr Rucker points out that income seekers will not be able to rely on cash savings or low-risk government bonds to provide the income they have come to expect.

In fact, investors want higher levels of income than any asset class can provide.

A poll of investors by Schroders found that the average expectation of annual investment returns for the next five years now stands at 10.7%, yet the investment house’s multi-asset team’s latest forecasts for the next 10 years show emerging market equities are likely to provide the highest return but even these are only likely to deliver 9%.

Sheridan Admans, investment manager of The Share Centre, agrees

that advisers should prepare their clients to expect lower returns from some regional or sector equities ahead.

Mr Admans says: “Equities generally in the last 10 years have delivered a Sharpe of about one; the long-run average is 0.6.

“Reverting back to the long-run average, it is likely equity returns will be nearer to about 5% returned during the next 10 years against a higher volatility backdrop, which equals a lower Sharpe.”

But Schroders’ Mr Rucker says it is important that investors do not despair.

thepfs.org | Personal Finance Professional | SPRING 2020

36-37_Income See_PFP Spring 2020_CII Personal Finance Professional 36

30/01/2020 13:02

INVESTMENTS

In developed markets in particular, rates of inflation are higher than deposit rates, meaning the value of cash savings is actually being eroded

37 the risks and how comfortable they are with taking those risks.

“Investing for a short time period is unlikely to bring the best returns.

A timeframe of at least five years is likely to be needed, particularly when investing in higher-risk assets such as shares.”

IKON IMAGES

EDUCATING THE CLIENT He says: “It may be unrealistic to expect returns of 10.7% per annum but it’s still possible to achieve higher returns than those offered by savings accounts or government bonds. However, you and your money will have to work for them.

“Higher returns are available but they are likely to carry higher levels of risk. It is important for income seekers to be aware that they are risking capital when investing in asset classes like corporate bonds or shares. Investors need to understand

Emma Wall, head of investment analysis for Hargreaves Lansdown, says what is key in 2020 is that advisers need to spend a lot of time on financial education – explaining the eroding impact of inflation, what market volatility is and how different assets such as stocks, bonds and cash have performed in the long term.

She says advisers should also take time to explain the importance of diversification and how different asset classes contribute to a portfolio and complement each other.

Ms Wall says: “It is also very important to establish the individual’s capacity for loss, their investment time horizon and their existing wealth and savings.

“One of the most effective tools

for ensuring an individual really understands what they are investing in – and that it well matches their risk appetite – is to actually avoid risk profiling and categorisation of low/ medium/high risk.

“Our advisers use a lot of open questions and aim to agree on a ‘tolerance’ that the client can afford and understand, then ask them to explain back to us why that is the case.

“We use situational questioning and stress testing based on different asset allocations to establish this, for example: what it would mean if the stocks in your portfolio dropped 50% versus what it would mean if equities dropped 50% in a mixedasset portfolio?”

As a number of metrics suggest the next 10 years in markets will not be as rewarding as the last decade, what is clearly very important is for advisers to ensure they have established a rapport with a client so they can adjust income expectations. ● Emma Ann Hughes is communications director of the PFS

SPRING 2020 | Personal Finance Professional | thepfs.org

36-37_Income See_PFP Spring 2020_CII Personal Finance Professional 37

30/01/2020 13:02

M ORTG AG E S

James Moorhouse examines the role and purpose of bridging loans in the UK property market

38

B

ridging loans can be a helpful way to provide clients with funds if they want to buy a property while waiting to sell another.

Bridging can be arranged for almost any borrower wanting to raise funds against a UK-based security.

This includes the ability to raise funding for foreign national clients purchasing or refinancing property in the UK. Bridging loans are secured against assets either being purchased or owned by the borrower, such as houses, flats, commercial buildings or buy-to-let properties. These can be individual assets or a portfolio of properties.

For example, a property developer could secure a bridging loan on one or more properties, depending on the amount they wanted to borrow from the lender. Clients can even borrow

against a plot of land – whether it has planning permission or not.

As an interest-only short-term loan, bridging loans can range from just one week to a term of up to 18 months. This means they can be very flexible to suit the requirements of the borrower.

THE BENEFITS The ability to briefly bridge a financial gap for borrowers means there are many short-term benefits of taking out this type of loan. As it is only a short loan, there is a speedy application process that is quicker than a mortgage or second-charge application. This is because bridging lenders look at the case scenario rather than individual affordability, leading to more ‘pragmatic’ underwriting. If the property and exit strategy are solid, then a lender can agree to the deal.

With repayments, there are two main ways that lenders charge interest: ● Retained interest. ● Rolled-out interest.

Whichever option clients choose, they must still have a solid plan in place to pay off the loan.

thepfs.org | Personal Finance Professional | spring 2020

38-39_Bridging F_PFP Spring 2020_CII Personal Finance Professional 38

30/01/2020 12:39

M ORTG AG E S

sells, should this be their exit strategy to repay the bridging loan. Speaking to an estate agent about the current housing market is advised.

This is known as an ‘exit route’. A viable exit route is a must on all bridging loan applications.

This is as important as the client’s status, property valuation and loan-to-value (LTV) ratio. Ways to do this include the use of any of the following: ● Refinancing. ● Sale of property. ● Equity release. ● Inheritance (with evidence). ● Investments. ● Pension.

It is possible to have more than one exit strategy, and the more exit strategies a borrower has in place the better. For example, if a client cannot sell the property, they could release equity from another property to repay the loan.

If a client reaches the end of their loan term and has not been able to repay the bridging loan, they could be charged. For unregulated loans, interest rates will increase in line with the terms of the loan agreement where the loan remains unpaid after the agreed term date. This will likely add to their costs or could see them losing some or all of the profit they would have made from the deal.

This late or non-payment can occur if they are relying on the sale of a property to repay the loan. While it may be difficult to gauge the property market 12 months from the start of a bridge, the borrower needs to be certain that they will achieve their intended value at the term end in order to ensure that their property

REGULATION

39

To ensure fair practice, some types of bridging loan are regulated. The Financial Conduct Authority regulates loans on someone’s home, because of the risk of losing it if they are unable to keep up with payments. A bridging loan is regulated in the same way as a residential mortgage. A bridging loan will be regulated if the loan is secured against a property that is (or will be) the main residence of the borrower or a member of their immediate family. All other deals would be unregulated.

Of these, there are two types of regulated bridging loans – first charge and second charge.

A first-charge bridging loan is the first loan that has been secured against the property and would generally be restricted to a maximum LTV of 75%. If there is any equity after the first secured bridging loan, the client can then take out a second-charge loan, restricted to 70% LTV. This can be with a completely new lender and will sit behind the first-charge loan.

With this flexible loan, as long REASONS FOR as the borrower has a good exit BRIDGING LOANS strategy and can keep up with the repayments, a bridging loan ● Broken property chain can provide a helpful short-term ● Unmortgageable property solution to plugging a temporary ● Lease extensions financial gap. ● ● Renovations/conversion ●

James Moorhouse is content manager at the PFS

●

Planning permission Auction purchase

spring 2020 | Personal Finance Professional | thepfs.org

38-39_Bridging F_PFP Spring 2020_CII Personal Finance Professional 39

30/01/2020 12:39

C H A RT E R E D

PROTECTING CORPORATE CHARTERED STATUS 40

Melissa Collett explains how the integrity of Corporate Chartered status is enhanced by a robust and independent complaints process

o achieve Corporate Chartered status (CCS) requires a public commitment to professional standards. With that public commitment comes beneďŹ ts: using the Chartered logo as a symbol of alignment with the Chartered ethos of nurturing knowledge, clientcentricity and serving society.

Chartered status also comes with responsibilities that are outlined in the CCS eligibility criteria, rules and terms and

thepfs.org | Personal Finance Professional | spring 2020

40-41_Protect Ch_PFP Spring 2020_CII Personal Finance Professional 40

30/01/2020 15:50

conditions (documentation available at cii.co.uk). Such responsibilities include cooperation with the Chartered Insurance Institute (CII) and the requirement to notify us of any issues arising while the firm holds CCS. Two of the most significant responsibilities relate to conduct and misuse of intellectual property.

These are: ● Promptly notify the CII of any investigation commenced by any other professional, statutory or regulatory body or authority into its conduct or affairs, or that of its staff (whether or not they are individual members of the CII), taking all reasonable steps to obtain any required permission for such notification to the CII. (Rule 5(d)) ● The CCS entity must only use the trademarks strictly in accordance with and for the purposes authorised in these CCS rules. (Rule 11(c)).

The CII appreciates that Chartered firms can face challenges such as regulatory intervention or press coverage that may affect the reputation of its business. If this does occur to a Chartered firm, it should notify the CII as soon as possible by emailing charteredfirm@ cii.co.uk (failure to do so in such circumstances could represent a breach of the CCS rules). The CII can then liaise with the Chartered firm to establish whether this incident could affect its Chartered status.

If a Chartered firm is unsure if it is using the Chartered logo correctly, it should contact the CII, which can provide guidance and support.

COMPLAINTS PROCESS If the CII becomes aware of any issues concerning a Chartered firm or a firm incorrectly holding itself out as Chartered, either as a result of an external complaint or through the professional body’s own monitoring, the CII’s complaints against CCS firms process will be triggered.

Chartered status also comes with responsibilities that are outlined in the CCS eligibility criteria, rules and terms and conditions

The CII has reviewed this process with the input of its Professional Standards Committee and this is detailed below: ● A complaint against a Chartered firm can arise when either an individual or a firm (whether they are Chartered themselves or not) is making a complaint about a Chartered firm. To qualify as a complaint, there must objectively be clear evidence of a potential breach of the CCS rules. This could include where the complainant believes that a Chartered firm is under investigation by the Financial Conduct Authority; where investigative action has been taken against members of its staff; or where there is a potential misuse of the CCS trademarks. ● In the first instance, any complaints received will be reviewed by the CII’s Professional Standards team. The vast majority of complaints can be dealt with at this initial stage by the Professional Standards team contacting the

Chartered firm, explaining the issue, listening to the firm and agreeing how to rectify the issue. ● If the complaint cannot be resolved, it will be escalated to the Professional Standards director for a decision. If the resolution could involve removal of a Chartered firm’s CCS or is sensitive in nature, the Professional Standards director may consult with the chair of the Professional Standards Committee before reaching a final decision.

At all stages of the process, the Chartered firm that is the subject of the complaint will be given a fair opportunity to respond to the complaint made against it. The Chartered firm will be expected to promptly provide such information as the CII reasonably requests.

If the Chartered firm does not accept the decision of the Professional Standards director, the CCS rules provide for a right of review. This review is conducted by a supervisory panel comprising three members drawn from the CII’s Independent Review Pool. The panel would review the decision of the Professional Standards director alongside written representations from both the CII and the CCS firm before reaching its decision.

The CII strongly believes that Chartered firms intend to do the right thing and recognises that difficulties can arise at any time. The CII’s desire is to work with Chartered firms to address any issues that may arise, where possible. Through a collaborative and transparent relationship between the CII and its Chartered firms, we believe that the standing of CCS can be enhanced and lead to greater trust in it by the public.

To raise concerns about a CCS firm, email: ComplaintsAgainstCCSfirms@ cii.co.uk ●

41

Melissa Collett is professional standards director of the CII spriing 2020 | Personal Finance Professional | thepfs.org

40-41_Protect Ch_PFP Spring 2020_CII Personal Finance Professional 41

30/01/2020 12:51

TECHNICAL Q&A

GETTING TECHNICAL Technical Connection answer queries on DGTs and benefit crystallisation events

Q

I have a client who has a discretionary discounted gift trust (DGT), who wants to move the fund management to another provider. If the bond was surrendered and the proceeds re-invested, how would the trust be taxed?

A

If the bond was surrendered, any chargeable event gain would be assessed to income tax on the settlor, if alive and UK resident, and otherwise on the trustees at the trust rate (45% with a credit for basic rate tax if the bond is an onshore bond). If the settlor is assessable to tax, they have a statutory right to recover the tax paid from the trustees, who would need to fund the repayment out of the surrender proceeds. If the settlor does not exercise this statutory right of recovery (and it is not excluded by the trust deed), they would be treated as adding to the trust and this would affect the inheritance tax position.

Another issue would be that because the new investment amount would be different from the original investment amount, the regular withdrawal amount that is payable to the settlor from the DGT may not equate to an exact percentage of the new investment amount, so it may not therefore be possible to fix withdrawals from the new plan at the required level. This would cause a problem as it is not possible to increase or reduce the ‘income’ level under a DGT. A possible solution would be to reinvest only so much into the bond as was invested into the original plan. However, the trustees would then need to decide what to do with any surplus investment growth. It may be possible to distribute this to beneficiaries and it would be necessary to consult the terms of the trust to check that there is no prohibition on such distributions during the settlor’s lifetime.

It is also essential to check the terms of the DGT as the trust deed could prevent the investments from being moved (some DGTs intrinsically link the trust terms to the original investment product).

A

A BCE occurs where the member dies before the age of 75 and uncrystallised funds are designated within two years to provide a beneficiary’s drawdown or used to provide a beneficiary’s annuity. Therefore, while any payments to the beneficiary are free of income tax in these circumstances, an LTA charge can still apply. A scheme pension paid to a beneficiary will not be a BCE. However, the payments will be subject to income tax.

A BCE will also occur on any lump sum death benefit payment. In all cases, the scheme administrator will pay the death benefits without deducting an LTA charge.

The personal representatives are responsible for determining whether an LTA charge applies. They do this after the payment of the lump sum, the date of designation to drawdown, or the date the beneficiary becomes entitled to an annuity as appropriate.

Where the personal representatives identify an LTA charge, they must report this to HM Revenue & Customs (HMRC). HMRC will then assess the beneficiary on any charge due. The usual LTA charges will apply – 55% on any excess paid as a lump sum, or 25% on any excess used to provide income. ● → These are actual questions and answers taken from the Technical Connection Techlink Professional question bank. Chartered financial planners can find out more about a trial subscription to TechWise by visiting: www.techlink.co.uk/techwise

ISTOCK

42

Q

When will a benefit crystallisation event (BCE) occur on the death of a pension scheme member and, if a lifetime allowance (LTA) charge applies, who pays it?

thepfs.org | Personal Finance Professional | SPRING 2020

42_Tech QandA_PFP Spring 2020_CII Personal Finance Professional 42

30/01/2020 12:52

SPONSORED

SUSTAINABLE INVESTMENT How do you make sense of the variety of different approaches?

T

he number of investment propositions dubbed ‘ethical’, ‘ESG’ and ‘responsible’ – to use but a few terms – is growing. Given the different approaches employed, it can be difficult to compare funds that are deemed sustainable. At Hawksmoor Investment Management we have developed a framework for evaluating different types of sustainable funds – Impact, Integration, Exclusion.

This framework helps our Investment Managers, financial advisers and their clients to think about and position different funds. ● Impact funds actively seek to invest in companies making a positive impact on the environment and/or society.

Examples of themes include improving the efficiency of using natural resources and providing financial services to under-served populations. ● Integration funds go above and beyond traditional negative screening in order to incorporate positive screening.

Examples of positive characteristics include companies with strong community relations and those providing healthcare for employees in developing countries. ● Exclusion funds adopt a traditional negative screening approach in order to avoid investment in companies undertaking contentious activities. Examples include the production of fossil fuels and any involvement with animal testing.

We invest in funds which sit in each of these categories, catering for portfolios across the spectrum from ‘light green’ to positive impact mandates. Performance is strong* – it is no longer the case that investing sustainably is detrimental to performance. Hawksmoor’s Moderate (40-60% Equity) Sustainable World model portfolio, for instance, rose by 16.4% over the course of 2019, eclipsing the 11.3% returned by its ARC Sterling Balanced Asset PCI comparator (Source: FE Analytics).

Our proprietary fund research process is at the heart of our work in the field of sustainable investment. Hawksmoor’s in-house Research team has a rigorous and disciplined approach to selecting sustainable investments. We attend regular meetings, hold conference calls and attend investment conferences with the managers of sustainable

funds. Whilst it can be difficult to ‘draw a line in the sand’, our fund research process is very important and helps to ensure that we avoid ‘greenwashing’.

Hawksmoor offers a Sustainable World Discretionary Portfolio Management Service (DPMS) and a Sustainable World Model Portfolio Service (MPS). The former employs exactly the same asset allocation framework, portfolio construction and fund research processes as for our ‘traditional’ portfolios. The latter was launched in July 2018 and now encompasses four different risk levels (see below). Our Sustainable World portfolios allow clients the opportunity to combine their investment objectives with supporting the aims of the United Nations Sustainable Development Goals. We believe that investing sustainably should not involve clients taking on more risk than in our traditional portfolios, nor should it require a higher minimum investment amount, or come at a premium cost – Hawksmoor’s annual management charge is the same for sustainable and traditional portfolios. We treat all investors, and their advisers, equally.

Hawksmoor’s Sustainable World Model Portfolio Service (MPS) comprises four portfolios: ● Cautious (0-40% Equity) Sustainable World ● Moderate (40-60% Equity) Sustainable World ● Adventurous (60-80% Equity) Sustainable World ● Equity Risk (80-100% Equity) Sustainable World.

These sit within our overall range of twelve model portfolios, each of which has an annual management charge of just 0.25% + VAT with no minimum investment amount imposed by Hawksmoor. Our MPS is currently available on eight different platforms: Aegon (ARC), Ascentric, Aviva, Novia, Nucleus, Seven Investment Management, Standard Life (Wrap) and Transact. ●

43

James Clark is a Senior Fund Analyst at Hawksmoor Investment Management *Past performance is not a guide to future performance

For more information about Hawksmoor’s Sustainable World investment services, visit hawksmoorim.co.uk or contact Jill Gill on 01392 454708

SPRING 2020 | Personal Finance Professional | thepfs.org

43_Hawksmoor AD_PFP Spring 2020_CII Personal Finance Professional 43

30/01/2020 16:11

Q2 REGIONAL CONFERENCE PROGRAMME

ADVICE DESIGN & A BUDGET DEEP DIVE 44

S

tarting in Telford on 25 March and running through to 4 June in Bournemouth, subjectmatter specialists will provide the usual mixture of practical and inspiring content, including:

● Cutting-edge

developments in advice process design; ● Budget implications and new advice opportunities; ● Macro trends and market drivers; ● Risk mitigation and protection advice; ● The big financial planning quiz.

Dates and locations are shown opposite.

Attendance is complimentary for PFS members and content is CPDaccredited. Lunch and refreshments will be provided.

Reserve your place now by registering at www.thepfs.org/events or through the PFS Events app.

thepfs.org | Personal Finance Professional | SPRING 2020

44-45_Q2 2020 Ev_PFP Spring 2020_CII Personal Finance Professional 44

30/01/2020 16:00

Q2 REGIONAL CONFERENCE PROGRAMME

THE PFS Q2 REGIONAL CONFERENCE PROGRAMME 2020 DATE

VENUE

STAFFORDSHIRE & SHROPSHIRE

25/03/2020

TELFORD INTERNATIONAL CENTRE

BIRMINGHAM

26/03/2020

ASTON VILLA

SUSSEX

31/03/2020

AMEX BRIGHTON

SURREY

01/04/2020

EPSOM RACECOURSE

KENT

02/04/2020

MERCURE GREAT DANES

THAMES VALLEY

07/04/2020

HILTON ST ANNES MANOR

HERTS & MIDDLESEX

08/04/2020

THE AUCTION HOUSE

LONDON

09/04/2020

GRAND CONNAUGHT ROOMS

YORKSHIRE

21/04/2020

ELLAND ROAD

LANCASHIRE, MERSEYSIDE & CUMBRIA

22/04/2020

MERCURE DUNKENHAIGH

GREATER MANCHESTER

23/04/2020

THE MERE

BRISTOL & CHELTENHAM

28/04/2020

TORTWORTH COURT

SOUTH WALES

29/04/2020

THE VALE

NORTH SCOTLAND

05/05/2020

ABERDEEN ALTENS

CENTRAL SCOTLAND

06/05/2020

CROWNE PLAZA GLASGOW

TYNES TEES

07/05/2020

RAMSIDE HALL

ESSEX

12/05/2020

CROWNE PLAZA LAKES

STAMFORD

13/05/2020

PETERBOROUGH MARRIOTT

NORFOLK

14/05/2020

SPROWSTON MANOR

ISLE OF MAN

19/05/2020

SEFTON HOTEL

NORTHERN IRELAND

21/05/2020

HILTON TEMPLEPATRICK

PLYMOUTH & CORNWALL

02/06/2020

CHINA FLEET COUNTRY CLUB

EXETER & NORTH DEVON

03/06/2020

HOLIDAY INN TAUNTON

HANTS & DORSET

04/06/2020

AFC BOURNEMOUTH

45

ISTOCK

REGION

SPRING 2020 | Personal Finance Professional | thepfs.org

44-45_Q2 2020 Ev_PFP Spring 2020_CII Personal Finance Professional 45

30/01/2020 16:01

SKILLS TO PAY THE BILLS George Tsounias explains how My Personal Finance Skills is delivering free financial education to students

T

he My Personal Finance Skills initiative delivers free financial education workshops to schools and colleges across the UK through a network of more than 800 PFS members (Education Champions) who are committed to giving something back to the local communities they serve.

So far this academic year, more than 300 workshops have been delivered to schools and colleges across the UK with a total of 500 plus workshops reaching an estimated 15,000 students expected before the end of the summer holidays.

46

FINANCIAL WORKSHOPS Our financial education material is aimed at students aged 15-18 and workshops have been designed to fit within a typical onehour school timetabled lesson.

Resources will enable Education Champions to deliver standalone workshops aimed at raising the financial competency of students. The content has been created in collaboration with Young Money, a trusted knowledge provider, supporting schools and colleges for more than 15 years.

The themes covered in the first series of workshops include: Moving on from school – student finance, earning, tax, NI, pensions.

My future finances – enabling students to develop their understanding of the value of everyday expenditure.

Making decisions and risk – students gain an understanding of their attitude to risk and how this can influence financial choices they make.

Staying safe – identifying financial scams.

for the first time. For this reason, we support you from the registration all the way through to the delivery of your first workshop.

As well as access to presentation guides and presentation slides, we have a series of training webinars that take you through each stage of a workshop. Furthermore, all Education Champions go through our simple financial education sign-off process prior to delivering their first workshop to ensure that they are confident with the material and have completed some simple yet important tasks. Finally, the My Personal Finance Skills team is on hand throughout the process to provide any additional support.

The PFS is committed to helping students have better financial awareness and providing support to teachers who are passionate about students’ understanding of money and are looking for free external support from professionals. Thanks to the success of the initial series of financial education workshops, we are working to develop new workshops and talks in 2020.

If you are interested in taking part or know of any schools that would be interested, contact: volunteers@thepfs.org George Tsounias is relationship manager of education at the PFS

“Thoroughly enjoyed the experience.

The students were really interactive, and interested and engaged in the topic” - TILLY QUIGLEY, EDUCATION CHAMPION

“As a form tutor to year 12s last year and this year, I can honestly say it is one of the best PSHE lessons from a visitor we had” - TEACHER

STEPPING INTO THE CLASSROOM We understand that many members are passionate about giving back but can be nervous of stepping into the classroom

thepfs.org | Personal Finance Professional | SPRING 2020

46_My Personal F_PFP Spring 2020_CII Personal Finance Professional 46

30/01/2020 13:20

SPONSORED

HAVE YOU REGISTERED WITH NS&I’SNEW ONLINE SERVICE YET?

B

ack in May 2019, NS&I launched its online service for financial advice firms. The key feature of this service is that, for the first time, advice firms can have secure online access to information on their clients’ NS&I holdings.

This gives advisers and their colleagues easier and faster access to more information than they previously had, including Premium Bonds prize history, which helps in calculating the return being achieved from a client’s Premium Bonds. This is in addition to information such as valuations, maturity dates and copies of correspondence sent to their clients.

The service also now offers an indefinite Letter of Authority template.

Access to the system can also be made available not just to the client’s adviser but to anyone in the advice firm who needs it, so for example, the paraplanner working on the financial

plan and the suitability report can have ready access when they need it.

Since May, more than 500 firms have registered to use the online service – equating to about one in 10 advice firms in the UK. This is an encouraging start but there is good reason for many more firms to register to use the service. This is because the vast majority of firms will already have clients with NS&I products in one form or another. Also, cash has become an integral part of the financial planning process during the last few years, since the Retail Distribution Review, as clients want their advice firms to manage all their savings and investments on their behalf.

We started to add to the features of the online service soon after it was launched, by giving advice firms access to joint account information.

In addition, we have started implementing a list of small userexperience tweaks and will continue to do so during the next year or so.

Phil Billingham, Chartered financial planner at Perceptive Financial Planning, commented: “The online service has made it much easier to manage our clients’ NS&I investments, saving us both time and hassle, and giving us the full online view of their holdings for the first time. NS&I has created a useful tool that says a lot about its commitment to building a strong relationship with advisers. We were delighted to work with NS&I during the test phase for this new service to help make it even more adviser friendly.”

The next key priority is giving advice firms access to their clients’ trust accounts, which are typically used for children or celebrities for anonymity.

We know that some advice firms have a lot of clients with trusts, so we need to make these available online too.

We will also be researching the appetite among adviser firms for transactional access and, if highlighted as a requirement, how they would want to access this, for example through the NS&I online service, through platforms, or cash management systems.

We realise it will take time for the message to reach advisers and their teams about the online service and the benefits it delivers, but we aim to get about two thirds of these firms registered to use it within the first two years.

Ultimately, we expect that our online service will deliver a step change in our engagement with advice firms. Many advisers already view NS&I as the default home for the cash element of their clients’ portfolios, due to our unique 100% security guarantee (backed by HM Treasury) for all funds, and our unique products such as Premium Bonds. This is reinforced by the fact that cash has become an integral part of the portfolio planning process, especially since holistic financial planning has become more widespread in the advice profession.

For more details, visit: nsandi-adviser.com/ obtaining- client-information If you are not the person that usually sets up this type of service for your firm, please share this article with the most appropriate colleague. ●

47

NS&I has created a useful tool that says a lot about its commitment to building a strong relationship with advisers

AUTUMN 2019 | Personal Finance Professional | thepfs.org

NSI_PFP Spring 2020_CII Personal Finance Professional 47

30/01/2020 13:00

The quick and easy y way to complete your client reviews.

Bespoke Funds with performance data. Ideal for restricted investment investme portfolios.

Daily y fund performa performance updates to ensure timely analysis.

7R ÀQG RXW PRUH FRQWDFW R ÀQG RXW PRUH FRQWDFW

01892 669494 sales@selectapension.com ales@selectapension.com

www.selectapension.com/rapidreviewer /

PFP.Spring20.047.indd 47

Single case report rep and multiple reviews review for clients with m more than one plan.

Full iO integration inte - No need to re re-key client data.

28/01/2020 09:50

STUDY ROOM

The CII Financial Assess training package tests your knowledge of key financial topics

QUESTION 1

QUESTION 5

QUESTION 8

A client agreement is required for which type of client?

A Professional clients only B Retail and professional clients and eligible counterparties C Retail and professional clients D Retail clients only

What distinguishes NEST from every other pension scheme?

A It cannot accept transfers from other pension schemes B It is an occupational scheme but uses the relief at source method of tax relief C It is run by the government D It must accept every employer who wants to use it, regardless of size

Who is responsible for the underlying investment decisions with collective investments?

A The adviser B The client C The fund manager D The trustee

QUESTION 2 Geoff is terminally ill and plans to sell his whole of life policy to an intermediary to raise money. What is this called?

A Equitable assignment B Power of attorney C Terminal illness benefit D Viatical settlement

QUESTION 3 Which Act introduced a replacement for the enduring power of attorney?

A The Attorney Act 2006 B The Finance Act 2006 C The Mental Capacity Act 2005 D The Powers of Attorney Act 2005

QUESTION 4 How often can an individual access the pensions advice allowance?

A Four times B Once C Three times D Twice

QUESTION 6 Under UK Financial Conduct Authority complaints rules, for how long must an authorised firm keep records of customer complaints for non-MiFID business?

A At least three years B Indefinitely C One year D Six months

QUESTION 9 Which of the following is a requirement for a client to be treated as a professional client?

A It is essential that no advice is given B The client must confirm their agreement in writing C The client refuses to disclose information to you D The professional client basis will apply to all new investment business

49

QUESTION 10 QUESTION 7 How can a put option on a FTSE index help a fund manager who believes the index is going to fall?

A They can buy the underlying asset at a price agreed at contract B They can buy the underlying asset at the price at expiry C They can sell the underlying asset at the exercise price D They can sell the underlying asset at the price at expiry of the contract

Systematic or market risk is measured by?

A Alpha B Beta C Correlation D Standard deviation

YOUR SCORE » 1–3 POOR 4–6 GOOD

7–8 VERY GOOD 9-10 EXCELLENT

ANSWERS 1C. Following the implementation of MiFID II, client agreements are required for both retail and professional clients.

2D. Viatical settlements can be used to achieve much but not

all of the policy’s full sum insured.

3C. The Mental Capacity Act 2005 contains the provisions that introduced lasting powers of attorney.

4C The allowance can be used

a total of three times at any age (but only once in any tax year).

5D. This is NEST’s public service obligation.

6A. A record must be kept for at least three years. (In the case of MiFID, a firm’s records

must be kept for at least five years.)

7A. A put option gives the fund manager the right to sell at a specified price. If the index falls, they will make a profit.

8C. Professional fund managers

make the underlying investment decisions.

9B. A professional client must confirm their status in writing.

10B. Systematic or market risk is measured by beta.

spring 2020 | Personal Finance Professional | thepfs.org

49_QandA_PFP Spring 2020_CII Personal Finance Professional 49

30/01/2020 12:52

PRESIDENT’S BLOG

PFS president Adam Owen pushes for each member to perform an act of kindness

MAKE A DIFFERENCE

I

STAYING RELEVANT

of the task that the Society has, now that we have reached a membership of 40,000.

Since becoming a member-nominated director in 2016, I have seen the work that the executive team does first hand, especially in the area of engaging with members. One of the key challenges for the Society is how it remains relevant to so many people while fulfilling its public duty as a professional body and catering for the needs of a diverse membership.

I believe that the strength of the PFS is in the diversity of its membership and that as members, we can all influence the progress of the profession. As we enter a new decade, we can be certain about very little.

As the world in 2020 is very different from 2010, so it will be equally changed by 2030.

However, I believe that we are stronger as a united profession and I see examples of fellow professionals supporting each other every day.

This support is not always in the form of a grand gesture – it is often a small act of kindness. If every one of us, the 40,000 members of the PFS, aimed to perform a small act of kindness just once a week in 2020 in support of our profession, that would be more than two million positive interactions.

For me, that is the point of the PFS. It provides a platform to bring people together to help each other and to improve the profession. ●

I will come back to what I think the purpose of the PFS is later but this conversation brought home to me the size

Adam Owen is president of the PFS

One of the key challenges for the society is how it remains relevant to so many people while fulfilling its public duty as a professional body

ILLUSTRATION: LUKE WALLER

50

n my last article, I invited members to raise questions about topics relating to the PFS or the profession in general and I have been delighted and intrigued by the responses so far. From those I received, the question I kept coming back to was asked by a delegate at our recent national conference. He asked me: “What is the point of the PFS?” That is a good question and, of course, it can be taken in many ways. My initial, instinctive reaction was to see this as a challenge to justify and validate the work that the PFS does, but to do so would be to miss the opportunity to have a conversation.

It is often the case that when someone asks a question like this, it is just a way of opening and engaging in discussion – and the subsequent discussion has the possibility of being far more nuanced than a simple call and response.

So, I asked him, based on the themes of the conference that we were attending and on the other ways in which he interacts with the Society, what he thought the purpose of the PFS was. His response reminded me that however hard an organisation tries to communicate something, the success of the communication is only really apparent when you hear the interpretation of your message by the receiver.

thepfs.org | Personal Finance Professional | SPRING 2020

50_Pres Blog_PFP Spring 2020_CII Personal Finance Professional 50

30/01/2020 12:53

Some things are just not you.

Tell us what information you want to receive and enjoy just the things that interest you.

thepfs.org/preferences

PFP.Spring20.051.indd 51

29/01/2020 15:02

FREE, decisive intelligence and insight for financial advisers Utopia for financial advisers Getting the right information isn’t easy. Our Hub provides considered, market-leading intelligence for financial advisers looking to add structure to their selection process and perfect their offering.

The RSMR approach We’ve been working with financial advisers since 2004, assisting them in delivering the right investment solutions for their clients. Over 15,000 advisers across the UK now use our fund ratings, which are underpinned by our rigorous investment research & analysis.

Sign up to the Hub and gain access to: • Fund profiles • Guides and methodology • Thought leadership pieces

• Market commentary • Supporting factsheets • Global news and video content

www.rsmr.co.uk PFP.Spring20.052.indd 52

28/01/2020 09:55