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For today’s discerning financial and investment professional





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This communication is for financial advisers only. Investec Structured Products is a trading name of Investec Bank plc, registered address 2 Gresham Street, London EC2V 7QP. Investec Bank plc is authorised and regulated by the Financial Services Authority.

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The perfect fit. Our business and yours Investec Structured Products New ways of working demand new strategies. Whichever combination of distribution models your business uses, we’ve aligned our products to fit your business needs. Offer Structured Products your way, by choosing from the following options: ■

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FTSE 100 Enhanced Income Plan 2

FTSE 100 3 Year Deposit Plan 40

FTSE 100 Defensive Kick-Out Plan 8

Deposit Growth Plan 23

FTSE 100 Defined Returns Plan 2

FTSE 100 Target Income Deposit Plan 2

Investments – Execution Only

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Nick Sudbury is a financial journalist and investor who has also worked as a fund manager. Kam Patel a former deputy editor at Hemscott. He is a qualified investment adviser. Monica Woodley is a senior editor at the Economist Intelligence Unit.

Lee Werrell is the Managing Director of leading UK consultancy, CEI Compliance.

Brian Tora a Communications Associate with investment managers JM Finn & Co. Richard Harvey a distinguished independent PR and media consultant. Gillian Cardy managing director of The IFA Centre.


Editorial advisory board: Richard Butler, Michael Holder, Ian McIver and Mark Pullinger

THE FRONTLINE: The rush for riches. It’s all about diversification – and liquidity




All the big stories that affect what we say, do and think

Editor’s Soapbox

Has the European equity surge slowed to let us catch our breath, asks Michael Wilson?


1963 and All That

Brian Tora looks back on half a century of change in the City

S2P, or Not 2P?

Where were you on the day when S2P died, asks Steve Bee?


Nick Sudbury’s pick of a strongly performing Asian Equity sector

Lee Werrell of CEI Compliance on today’s important issues


FSA Publications

Our monthly listing of FSA publications, consultations, deadlines and updates

The IFA Centre

Developing better services can be a Catch 22 situation, says Gill Cardy



Pick of the Funds

Compliance Doctor





Thinking of affiliating, ask John Anderson? A consultant can play a useful role

Thinkers: Friedrich Hayek Not your average conservative, despite the reputation


The Other Side

Editor: Michael Wilson

Art Director: Tony Merlini

Publishing Director: Alex Sullivan

The flat state pension, and why Richard Harvey is sleeping on the sofa tonight


This month’s contributors



magazine... for today ’s discerning financial and investment professional

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features 22

Britain: Two Cheers for Europe Will a referendum on Europe leave us freezing on the outside? Monica Woodley has some provocative questions to ask



Mighty Minnows

Richard Power of Octopus Investments says that a well-run smallcap fund packs a punch



Emerging Africa – The New Frontier

Stephen Spurdon dons his pith helmet in search of untold riches. Eat your heart out, Rider Haggard


Africa: a sixth of the world’s population - and two thirds of them own a mobile phone. Not a lot of people know that

Multi-Asset Funds

Cheap, flexible, effective. Kam Patel explains the heady growth of multi-assets within the DFM framework


Building Up Your Planning Side

Okay, so you’re through the main gates of RDR, says Sue Whitbread of the Institute of Financial Planning. How are you going to capitalise on those client relationships?

IFA Magazine is published by The Wow Factory Publications Ltd., 45 High Street, Charing, Kent TN27 0HU. Tel: +44 (0) 1233 713852. ©2013. All rights reserved. ‘IFA Magazine’ is a trademark of The Wow Factory Publications Ltd. No part of this publication may be reproduced or stored in any printed or electronic retrieval system without prior permission. All material has been carefully checked for accuracy, but no responsibility can be accepted for inaccuracies. Wherever appropriate, independent research and where necessary legal advice should be sought before acting on any information contained in this publication.

IFA Magazine is for professional advisers only. Full subscription details and eligibility criteria are available at:

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Octopus VCTs Head and tentacles above the competition

If your clients are looking to grow their savings in a more tax-efficient manner, there’s really only one place to look. That’s right, under the sea. Octopus has launched new share offers on some of its most popular VCTs. Each provides investors with access to well-established and highly diversified portfolios of outstanding UK companies, as well as benefitting from tax-free growth and dividends. So, whether investors are looking for dynamic growth (Titan VCTs), capital preservation and regular dividends (Apollo VCT), or a blend of growth and dividends (our two AIM VCTs), they’ll find it with us. Find out more about our RDR-friendly VCT charging solution at

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Issued by Octopus Investments Ltd, 20 Old Bailey, London EC4M 7AN. Octopus Investments Ltd is authorised and regulated by the Financial Services Authority. Ed's Welcome.indd 6

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m K


s s g


The first six weeks of this year probably led a lot of us to believe that the equity boom could go on for ever – even though a 13% rise in the Footsie since November ought to have made us expect at least some sort of a correction along the way. That correction might be happening now. The eurozone’s final quarter statistics for 2012 revealed a shock 0.6% contraction against the third quarter – meaning, in effect, that the 17 member group had achieved zero annual growth for the first time ever. And the markets didn’t like that at all. It brought an immediate halt to the European uptrend - although for how long will be more apparent to you than it was to me at the time of writing in mid-February. Things were little better for Mervyn King, the outgoing governor of the Bank of England, who confirmed in New York on 13th February that the UK’s recession had been “not normal”, and that it would take several more years than expected to heal. Coming on top of the IMF’s recent queries about the wisdom of the all-out austerity policy – and the government’s continuing failure to cut its own costs – it was an awkward moment all round. Meanwhile, these are also testing times across the Atlantic. America’s “sequester” – the implementation of the delayed budget cuts that should have come in on 1st January – is still lurking around the corner and needs to be addressed urgently within the next month or so, unless we want to see the savagery of automatic cuts that will hurt not just the federal budgets but also the vulnerable. Not to mention trashing the world’s trade prospects. Unfortunately, the likelihood of the Republicans lining up readily in agreement with the Democrats is about par with a flock of pigs flying in formation up the Hudson River. Realistically, the best we’re likely to get is another grudging standoff and another few kicks of the can. Is that a bad thing? Well, it’s not ideal, but nor is it actually disastrous. A little pragmatism ought to see us out of this situation. And, as we discuss on Page 17, global share values are still quite attractive, even if they’re not quite the extreme bargains they seem. Right now, with the daffodils coming out in England and the first beginnings of warmth in the sun, it feels like the wind might finally be changing direction. Here’s hoping.

M ik e

Michael Wilson, Editor IFA magazine

Write to Michael at

Februar y 2013


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, Switzerland’s largest bank, reported a 1.9 billion Swiss francs (£1.3 billion) loss during the final quarter of 2012, largely because of the $1.5bn it received after the Libor scandal. The loss brought the whole-year shortfall to Sfr2.2 billion – compared with a profits of Sfr4.4billion in 2011. Ouch.

OFF TO A FLYING START As January goes so goes the year, they say. Global financial markets got off to a storming start, as the Footsie and the S&P 500 both gained nearly 6%. Amid hopes of what exactly? Well, it depends who you ask. And what you make of the mid-February setback that was to follow. In the United States, the initial consensus seemed to be that there was a perfectly adequate justification for a stock market boom in the form of Barack Obama’s lastminute agreement with the Republicans on a two-month postponement of the

fiscal cliff – which won’t now become a pressing issue until maybe late March. And as January rolled on, a timely new set of optimistic job figures helped to dull the pain of an interim report suggesting that America’s economy had contracted very slightly in the final quarter. In Europe, what seemed to get the markets rolling was a renewed sense of purpose. As the slightly strained relationship between France’s Socialist president François Hollande and Germany’s Christian Democrat Angela Merkel warmed a little, and as the moves toward a banking union made the prospect of a Greek exit from the euro seem just a little less likely, the mood seemed to change. Spain’s borrowing costs came down, albeit erratically, with the ten year bond below 5.3%, and the euro soared against the pound as Italy’s ten year paper dipped to 4.4%. The real conundrum was the UK, where the Footsie’s gain had pushed through to 8% and beyond by the time the second week of February came through. Considering that new figures suggested a final-quarter economic contraction, and that Christmas retail sales

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had been nothing to write home about, and that Comet, HMV, Blockbuster and Jessops had all gone bust, it was properly remarkable.

The Causes?

Could it really have been simply that UK savers were desperate for income returns? (Let’s remember that dividend yields on the All-Share are a good 150 points ahead of the yield on ten year gilts.) Or was it that old favourite, austerity fatigue? No, the bulls insisted, it was simply that there was money out there that ached to be invested. With central banks around the globe talking about pushing up inflation – a favourite way of taking the sting out of hefty public sector debts – there was simply more logic to investing your money in equities with above-inflation yields than in keeping it under the pillow. That was about as far as the optimism ran before a rank of new concerns moved in to cast a passing shadow or two over the scene. A shock set of figures from the EU, showing that Eurozone economies had contracted by 0.6% in the final quarter of 2012 – and thus, that they had made no growth in the whole of the year – was enough to send European markets downward. In America, meanwhile, concern was rising about the imminent arrival of the ‘Sequester’ when Congress’s period of grace finally ended and the automatic cuts to social spending, military budgets and much else finally kicked in. The general effect of these cuts has


Barack Obama’s


inauguration address on 21st January included an assertion that the US economy had begun a strong recovery – a tough call given that some taxes had just risen, that Q4 growth had faltered and that defence spending had been slashed. The new Administration’s programme includes spending on infrastructure and education, and a drive to restore prosperity to the middle classes.

is once again the world’s biggest car manufacturer, overtaking Volkswagen’s 9.1 million vehicle output with a 9.8 million sales figure. GM also moved up into second place; Ford, however, said it had lost heavily on its European operations.

been broadly estimated at 5-6% of America’s GDP, although nobody knows for sure. In Britain, meanwhile, the markets had seemed to be shrugging off new fears that international businesses might be deterred from investing by David Cameron’s 22nd January announcement that a referendum could/would be held in 2017 on the terms of Britain’s continued membership of the EU. Unless, that is, the Brussels mafia laid off with their attempts to strong-arm the UK into submission on sovereign issues such as defence or labour market directives

Still Whistling

But it was still hard, despite everything, to see too many seriously negative signs. Market volumes remained low in Europe, probably reflecting a unanimity of sentiment rather than a lack of enthusiasm. But perhaps the most important proof that there was more to this rally than herd behaviour lay in the remarkably low level of market volatility. The Vix index, which measures perceptions of future volatility, was down in early February to the lowest levels since 2007. And a surge of new investment into funds, particularly ETFs, was being seen as a further indication that this time, at last, the risk-on/risk-off mood of the last four years might be shifting. For more comment and related articles visit...

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UK retail sales

Apple lost its crown

had a good January, according to a report by the British Retail Consortium. Like-for-like sales were up by 1.9% compared with the same time last year, thanks in part to strong sales of tablet computers and smart phones.

as the world’s biggest traded company, after a sharp fall in its share price coincided with a push from Exxon Mobil to a $418 billion market capitalisation. Apple’s shares have plummeted from $700 last October to barely $450 in February, as worries surfaced about its diminishing innovative advantage.

Parental Pain The stresses of the recession have been taking their toll particularly on families with young children, according to a recent survey by Aviva And yet, over the longer period, parenthood seems to be having a progressively beneficial effect in persuading them to take up life assurance, make a will and generally secure their children’s future. Some of which is what we’d probably have expected anyway, of course – because few things concentrate the mind as powerfully as contemplating the future happiness of one’s offspring. But the report shows up how much harder the younger parents are having it at the moment. 23% of the parents of children under two told Aviva’s researchers that they had completely stopped saving, while 29% had been forced to dip into their existing savings to make ends meet. 48% said that they worried about their incomes, and 18% were borrowing money from other family members. But conversely, an above-average 44% had started saving on their children’s account. Of more concern, probably, was the fact that only 17% of parents with children under two had written a will, and that only 28% were paying into an employer pension, with another 13% paying into private pensions. (Auto-enrolment will presumably help here?) Life assurance was a clear victim for cash-strapped parents, with only 31% holding a policy.

Older, wiser and more cautious Things had improved a little by the time children were into their teens, but not by that much. 37% of parents with children aged 11-15 had a life policy, 32% were paying into an employer pension, and 22% had a private pension plan. 22% of this group were still using their bank overdrafts to make ends meet. One bright spot here was that fully 39% of these thirtysomethings had written a will by that stage of life. But it still points up a significant gap in the personal provision arrangements of many parents. And, of course, an opportunity for advisers to make new customers. The Aviva report can be downloaded at

For more comment and related articles visit...

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Leverage the strength of Wells Fargo

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Competitive advantages: What makes the team stand out Informational advantage gained through “surround the company” research The Fundamental Growth Equity team’s rigorous research process “surrounds the company” and provides multiple perspectives, resulting in a superior level of insight and a clear, 360-degree understanding of each investment opportunity. Markets evolve and reveal new exploitable tendencies, as investors react to new data in different ways. In response, the team makes 4,000 contacts per year with companies and other information sources (an average of 100 contacts per quarter by each portfolio manager and analyst) in an effort to understand a company’s business model and its prospects for strong, sustainable growth from all angles. This intensive research process includes in-depth conversations with senior management, as well as middle managers and employees. It also includes additional research and discussions with suppliers, competitors, customers, and industry contacts. The team scrutinises balance sheets, income statements, and cash-flow statements to understand each company’s capital allocation decisions and its drivers of revenue and earnings, while paying close attention to cash flow and return on invested capital (ROIC).

Subadvisor Wells Capital Management Management team Thomas Pence, CFA Michael T. Smith, CFA Team headquarters Indianapolis, Indiana (USA)

Investment team The 22-member investment team is led by Thomas Pence, CFA, who founded the investment strategy in 1991. He is joined by two coportfolio managers, a product specialist, three senior relationship managers, a client service manager, nine research analysts, three research assistants, and two dedicated traders.

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China’s economic

growth may exceed 8% in 2013, according to the China Investment Corp, whose chairman Lou Jiwei said that an export drive would contribute to world growth. But that US and European problems meant the world economy faced only a “mild, tortuous and slow recovery”.

51% of IFAs say

they expect to serve more clients in 2013 than in 2012, according to a survey by data providers Matrix. The “Voice of the Adviser” study reports that only 4% saw a drop in requests last year, while 50% saw an increase.

It’s Still Bubbling More bad news for the pension funds and local councils that found themselves caught up in the Icelandic banking collapse of 2008 Or rather, for the British government that generously made up their losses and then went back to Iceland to get the compensation money back from Reykyavik. It seems that we’re all going to have to wait a little longer for the money. Iceland has won a European court ruling that sets aside an application by Britain and the Netherlands to expedite the repayment of the billions that are currently owed to foreign creditors by Icesave Bank after the collapse of its parent Landbanki. (The creditors are, effectively, the governments of Britain and the Netherlands.) The two countries had applied to the court, in effect, to force the Icelandic government to pay up within the time limits originally laid down by European deposit guarantee schemes. But unfortunately the court agreed with Iceland that this was an unreasonably tough repayment regime, considering the dreadful extent of the 2008 crisis. But then, this was not your normal European Union court based in Brussels. Instead it was the European Free Trade Association’s own court, which regulates the EFTA countries (Iceland, Liechtenstein and Norway) which are also part of the European Economic Area – or, in other words, a sort of legislative bridge bwteeen the two bodies, sitting in Luxembourg. And on this occasion the decision went against the two EU countries. Britain has tried most things over the years to get the money repaid, including using anti-terrorism laws to try and freeze Landbanki assets. But on this occasion, no dice. What’s more, the court has put the skids under the whole question of whether it’s legitimate to force a government to bail out its banks’ foreign creditors. It declared, in effect, that Iceland did

not have to indemnify Icesave’s British customers to British standards, because the relevant European rules didn’t require it to pay a minimum compensation amount – and more importantly, it didn’t really oblige the state to pay off the debts at all if the banks themselves could not pay. In practice it won’t be that bad. Iceland says that half of the 1,166 billion crowns of claims from Icesave has already been repaid from the books of the failed Landsbanki estate – and that this is over 90% of what it calls the minimum deposit guarantee. (Britain has demanded a higher threshold.) But the repayments were stopped after a public referendum in Iceland forced the government to backtrack. So it looks like we’ll be waiting a while for the rest of the repayment. Anyone fancy a herring?

For more comment and related articles visit...

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Barclays’ chief executive

Antony Jenkins (left) waived his £1 million bonus package for 2012, declaring that it would be wrong for him to accept it after the scandals of the previous year. His predecessor Bob Diamond had had to resign over the Libor rigging scandal, and the bank had been fined £290 billion. Meanwhile former Chancellor Nigel Lawson demanded that RBS should be fully nationalised; at present the state owns 82% of the bank.


Nest’s restrictions

on transfers from other pension schemes came under fire from the organisation’s chief executive Tim Jones, who said the restrictions would make it hard for employers to sell the simplicity of Nest to their staff. He also demanded the removal of the £4,400 annual contribution cap.

Small Change Surprise, surprise. Pension savers with smaller pots are less likely to take professional advice when it comes to examining their retirement options, according to AXA Life’s latest quarterly study of IFA opinion The introduction of fee-charging is putting off the smaller savers, for whom even a modest fee inevitably takes out a bigger proportional lump of the nest-egg. That’s a pity, because it’s the smaller saver who needs good advice the most. These are the people who are most likely to accept whatever annuities their providers happen to be offering, without shopping around. But the levels at which the fee deterrent starts to work are surprising. The mean consensus opinion among AXA’s interviewees was that the cut-off point was a pot of £65,600 – meaning that those with less would be regarded as unlikely to seek advice. IFAs in the south of England put the psychological barrier slightly higher, at £66,950, but those in the East and Midlands had it unexpectedly high at £71,450. Scotland, Wales and Northern Ireland put it at a mere £59,625. A word of statistical caution, though. These mean averages (yes, we know, that’s a contradiction in terms) concealed a wide range of opinion. 21% of the interviewees put the barrier level as low as £25,001-£50,000, while fully 22% put it at the higher level of £50,001£75,000. The shock, perhaps, was that another 22% placed the barrier north of £100,001. What to do about the smaller pot-holders? And especially those with £17,500 or less, who only 16% of advisers reckoned would be up for buying paid-for advice? The IFAs said that they were (narrowly) against the creation of an industry or government body to advise these people. That will have disappointed Simon Smallcombe, AXA’s UK Head of Guaranteed Distribution, who reaffirmed his commitment that “steps need to

be taken to ensure that those on lower incomes continue to have access to affordable advice.” “There are a number of free online services which allow those approaching retirement to compare annuity rates,” he agreed. But “these services won’t always take into account alternatives such as enhanced annuities or unitlinked guarantees. What might seem like a saving in the short-term could prove costly over time.” For more comment and related articles visit...

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PPI claims management

companies that waste the banks’ time and resources with bogus claims should be penalised and made to pay the resulting costs, according to Lloyds chief executive Antonio Horta-Osorio (right). It currently costs the banks £500 in fees to the Financial Ombudsman for every legitimate claim lodged, plus another £350 if more than three cases are referred.

Unit-linked funds

are to come under the FSA’s lens, as an investigation into the £800 billion sector gets under way. The regulator says it is concerned about the governance of unit-linked funds by life insurers, noting that any failures pose a “high risk” to the FSA’s statutory objectives regarding consumer protection. It also intends to check that the assets backing these policies are appropriate for policyholders.

Banks: Electrifying the Ring Fence It didn’t come as a big surprise to find the Chancellor endorsing the findings of the Vickers Commission... ...on forcing banks to separate their core high street activities from their investment operations with effect from 2015. But it was rather refreshing to hear him threatening to follow through with sanctions designed to jolt the recalcitrant institutions into action if they failed to get their respective acts together. Speaking in Bournemouth on 4th February, the Chancellor departed from his previous line, that it wouldn’t do to “unpick the consensus” on bank structures, and spoke up instead for Vickers’s proposal that a change in the banking culture should include an ‘electrified fence’.

Shock Treatment It still isn’t exactly clear what sort of shock treatment the Chancellor has in store for banks that don’t change their ways, but the expression of purpose marks a drastic change from his apparent back-stepping in December, when he said that re-opening the banking reform debate would create “massive

uncertainty”. And it certainly upset the British Bankers’ Association, whose chief executive Anthony Browne protested that the change of heart would deter businesses and make it harder for British banks to raise much-needed capital. There was more, much more. Mr Osborne repeated that the effective monopoly control of the UK banking scene by the Big Four (75% of personal accounts, 85% of businesses) needed to be reduced, and that their cultural stranglehold over smaller businesses needed to be relaxed. Not for the first time, he said that it should be possible for a consumer to switch banks within seven days. But this time he gave them a deadline. The accelerated switchovers must be in place by September.

Meanwhile, in Brussels... It wasn’t a particularly good month for continental European banks either. The governments of 11 Eurozone countries moved toward introducing a set of investment trading levies (a so-called “Tobin tax”) that would need to be paid by any institutions based in their territories. But which would also be likely to weigh on foreign institutions that happened to be operating in the UK, which had strongly opposed the deal. Germany, France, Italy, Spain. Austria, Estonia, Belgium, Greece, Portugal, Slovakia and Slovenia signed up to the levy, which will amount to 0.1% on all financial transactions except derivatives (which will incur a 0.01% levy instead.) Brussels hopes that the tax will raise as much as €37 billion a year. €37 billion? With the Eurozone population at 331 million, that would seem to imply an annual taxable turnover well north of €100,000 per head. Nice work if you can get it. For more comment and related articles visit...

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Beyond Active vs Passive Investment Strategy for the Modern Adviser IFA Magazine, in association with JM Finn & Co, is proud to announce a series of events across the country that will help advisers interpret and articulate the modern investment proposition. Today’s better-informed adviser has already moved past the traditional ‘passive versus active’ argument: instead, these events are designed to help advisers develop and understand blending strategy, and the benefits of adopting a unified approach.

Dates and Venues JM Finn & Co, London Venue TBC, Manchester Venue TBC, Birmingham JM Finn & Co, London

24th April 14th May 12th September 14th November

2013 2013 2013 2013

Provisional schedule:

10:30 am : Open for refreshments 11:00 am : Seminar Begins: Brian Tora - Chairman’s welcome 11:05 am : Gillian Cardy, MD of the IFA Centre: Neil Cowell

The IFA perspective on Passive and Active Funds. The regulatory environment, and what the modern IFA needs to know.

11:30 am : Mike Mount, JM Finn & Co: The DFM approach to blending. Examples of real world mandates, filtering and demand.

12:00 am: Panel discussion and expert insight from leading providers.

Matt Arnold

Panellists to include: Neil Cowell – Vanguard, Matt Arnold – SPDR, Guest Panellist Passive 3, Guest Panellist Active 1, Guest Panellist Active 2, Michael Wilson, Editor IFA Magazine.

• Hands On or Hands Off? Passive/Active Balance and the Client Profile

Alec Stewart

This seminar is CPD Accredited

Topics to include:

• P  assive and Active Strategies How Much More Can an Active Approach Achieve? Control Versus Cost, and Finding Solutions for Every Client

12:45 pm : Lunch: Entertainment will feature an address and Q&A by international cricketing legend Alec Stewart, the most capped England Test cricketer of all time.

2:00 pm : Close Add to register or for more information, visit or e-mail Sponsorships are available – please contact IFA Magazine for details magazine


The events will be filmed and edited to appear on web sites and will also be distributed via BrightTALK thought leadership channel.

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I FA M A G A Z I N E . C O M



m ...WHEREVER YOU ARE. ag az in e magazine

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False Dawn? THIS YEAR’S EUROPEAN RALLY ISN’T ALL IT SEEMS TO BE, SAYS MICHAEL WILSON Well, we’ve seen the good news, and it was pretty good too while it lasted. The EU summit in mid-February turned out to be the first in more than a year that didn’t end in a fistfight – indeed, it was the first for ages that resulted in a thumbsup for David Cameron, as his campaign for a cut in the EU budget finally bore fruit. No wonder the financial markets of Europe were in optimistic mood.

Meanwhile Ireland figured out a way to deal with its debt burden. Portugal managed to access the debt markets for the first time in many months. But those were as nothing compared with the rumours that Greece might be out of the euro relegation zone at last, thanks to some better than expected figures for the final quarter. Why, even Germany’s mood was coming round to a more accommodating stance toward its errant Greek partner. The good news continued. There was even a certain kind of grace to the way that Spain’s markets managed to swerve around the worrying allegations that Prime Minister Mariano Roy had been involved in some sort of corruption scandal. The fact that one of his team, a former PP treasurer called Luis Barcenas, had had his $30 million Swiss bank account investigated after allegedly running a slush fund for nearly twenty years - with beneficiaries who had included the PM himself - didn’t cause much more than a modest blip in early February, which soon turned into a 5% rally. No doubt about it, it was all looking just a bit too good to be true. But you know what they say about that...

St Valentine’s Day Massacre On the whole, the European stock markets haven’t needed much persuading this year that the good times are back again. By midFebruary the FTSE Eurofirst 300 was up by 22% on its August 2012 levels at 1,150, and almost within reach of its February 2011 peak. (Although

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magazine... for today ’s discerning financial and investment professional still 16% below its mid-2008 levels.) The same was also true of the Footsie - up by 13% since November and going like the proverbial train, especially since Christmas. And then, like a bolt from the blue, came the news on 14th February that the eurozone countries had shrunk by 0.6% during the last quarter of 2012 – the worst quarterly contraction since the Lehman crisis hit in 2008. What was shocking was that this wasn’t a yearon-year drop but a quarter-on-quarter decline. Yes, it meant exactly what it said on the tin. New official statistics had shown that the 17-member currency group had undershot the expected 0.4% contraction by a hideous margin – and the euro lost almost 1% in a morning as the European financial markets lost their nerve. Germany, we were told, had lost 0.6% of its entire gross domestic product during the final quarter, while France had escaped with a more modest 0.3% fall. Italy had lost 0.9%, which wasn’t good news given that it had a general election approaching. If you recalculated the figures to include the whole 24-member EU group, the overall decline was 0.5%. That’s quite a lot worse than the UK’s own ‘technical’ shrinkage of 0.3% during the same quarter. And just for once, George Osborne had some sort of right to feel that he wasn’t trailing the field. These days you have to get your good news where you can find it.

Just a Correction?

So the question is, will this shock have a profound and lasting effect on the European investing mood, or will it be overwhelmed next month by a return of confidence? Let’s not forget, after all, that the stock markets not just of Europe but of the whole world are bursting with the pent-up pressure from investors who are now getting pretty desperate to get back into equities. And no wonder. With global bond yields at absurdly low levels, and with the prospect of inflationary pressures fuelled by double-speak from central bankers about quantitative easing, there seems to be no point any more in holding back at a time when the herd is moving in the right direction. Surely the tide of money will overwhelm the short-term worries shown up by the mid-February announcement?


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That’s certainly what Germany says. The national statistics office explained that the over-strong currency had been holding back Germany’s export potential for some time. “Comparatively weak foreign trade was the decisive factor for the decline in the economic performance at the end of the year,” it declared, with just a hint of pique. “in the final quarter of 2012, exports of goods declined significantly more than imports of goods.” The corollary being, presumably, that a sharply weaker euro will now allow the locomotive of Europe to chuff away with much greater effect. And yes, as far as it goes, that’s a persuasive argument. It’s all the more persuasive for the fact that the 8% surge in the European currency’s value against sterling since last summer, from 79 pence to 85 pence, had been so very damaging. It wasn’t just Germany’s manufacturers who’d been suffering: the rise in import volumes - fuelled by rising food prices and a need to pay more for Chinese manufactures that are no longer so cheap – had kaiboshed Europe’s balance of payments as well as the GDP calculations (in which, of course, imports count as negative factors). That, of course, was a particular problem for Germany’s Chancellor Angela Merkel, whose government faces a general election in September against a populace which is getting increasingly cheesed off by the rule from Brussels. But we digress. There were other reasons, of course, why the euro should have been strengthening – not least, the fact that both London and Washington are still talking about quantitative easing, which would probably weaken both their currencies against a necklace of cowrie shells, never mind

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Anything Else We Should Know?

But were there any other signs of caution in the market before the mid-February check? Well, one in particular stands out. This year’s trading volumes, both on the Eurofirst and the Footsie, have been around 30% smaller than the levels of last spring. And indeed, they’re barely a third of the levels seen in the spring of 2009. And that’s a little unusual at a time when investors have been delivering double-digit growth. Not to say, a little odd. Some experts I’ve talked to have been telling me that the low trading levels are happening because a growing proportion of trades are conducted in New York rather than in the European centres. Others, meanwhile, insist that they’re actually a good sign, because they suggest that the trading sentiment has being going all one way recently.


The short-term risk on/risk off patterns of the last few years, these experts insist, always reflected an unwelcome uncertainty of approach - and conversely, if prices are now rising while volume is low, then that means there’s a high level of unanimity. That theory would seem to be borne out by the very clear signs from the Vix index, which is a sort of proxy for the way that volatility is perceived in the United States. (Essentially, it’s a measure of what sort of premiums US investors are prepared to pay to protect themselves against future volatility on the S&P 500.) So when investors aren’t worried, the Vix falls, and when they get edgy it moves upward. As of mid-February, the Vix was around 13. Last summer it peaked at nearly 27, and in late 2008 it hit 80. Enough said? We’ve come a long since Lehman.

the emergent eurozone recovery. And the fact that the Eurozone banking system really did seem to be putting the right measures in place to protect the over-borrowed southern economies. Mario Draghi, the European Central Bank’s president, had done a good job by promising to do “whatever it takes” to protect the banks – including spending “unlimited” amounts on bank/bond support programmes.

Just One Final Check, Then

What we seem to be saying here is that it’s going to take more than a poor set of quarterly results to knock this year’s positive trend off course. All we need now is some confirmation that there’s still enough headroom left in stock prices to make it worth our while. Which is where things get a little tricky. Now, we should remember that there’s a lot about price/earnings ratios that isn’t reliable. When corporate profits are temporarily down, even a moderately forward-looking view of a company’s worth can make a p/e look unduly high. But compare the ratios in the table, and you’ll see Yields that it’s not so clear that the signs are as welcoming as we might wish. 3.2

Stock market ratios, mid-February 2013 Main market data

P/e ratio

UK US: Dow Jones US: S&P 500

13.6 14.5 15.8

Japan Austria Belgium France Germany Dax Greece Ireland Italy Netherlands AEX Portugal Spain Switzerland Turkey

16.4 15.0 15.6 15.2 11.7 15.4 11.4 13.1 10.6 17.4 13.0 19.7 11.9

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2.6 2.5 2.0 2.8 2.1 3.6 3.0 1.6 1.1 4.1 3.2 4.3 4.9 2.9 2.0

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magazine... for today ’s discerning financial and investment professional There was a time when the Dax was worth around 12 times earnings, but that was a long time ago – 2006, to be precise. And although the ratio rose to a heady 15.5 in 2007, it dropped back to 14 in 2007 and hasn’t been seen in that territory since. So although today’s p/e ratio of about 12 looks like fair value, it isn’t going to set my heart on fire with its cheapness. Especially if I think a weakening euro may soon deplete the value of that 3% yield. Italy’s p/e of about 13 looks attractive against its 2007 peak of 17, but goodness, a lot of water has flowed under the bridge since then. And France’s 15 is only a whisker off the alltime peak of 17.5 that it reached in mid-2007. Too expensive by most standards, methinks.

If I were an international investor, would I be attracted by London’s 13.5? Only if I hadn’t snapped it up four years ago when it was closer to 10. To my eye, there just isn’t enough of that precious headroom in these price levels. But hey, please do prove me wrong. European markets are where most of my pension funds are invested. Where would I look instead if I were truly an uninterested outsider? Japan, of course. The horrors awaiting Prime Minister Shinzo Abe’s efforts to set the debt level straight are awesome. But so is the fact that p/e ratios on the Nikkei were rarely below 35 even during the relatively heady days of 2006/2007. And to find them at 16.5 now suggests that there’s probably a better opportunity to be found in Tokyo.

“Comparatively weak foreign trade was the decisive factor for the decline in the economic performance at the end of the year.”


S U 1 T fu w Do you have a good reason for the Editor to jump back onto his soapbox? Not that he needs any encouragement, please send your requests to and stand well back!


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Im M G S

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Sparkling investments || JULIUS BAER LUXURY BRANDS FUND Swiss & Global Asset Management (Luxembourg) S.A. UK Branch 12 St James’s Place, London T +44 (0) 20 7166 8176 The exclusive manager of Julius Baer Funds. A member of the GAM group.

Important legal information: The information in this document is given for information purposes only and does not qualify as investment advice. Julius Baer Multistock Luxury Brands Fund is a sub-fund of Julius Baer Multistock (SICAV according to Luxembourg law) and it is admitted for public offering and distribution in the UK. Copies of the respective prospectus and financial statements can be obtained in English from Swiss & Global Asset Management (Luxembourg) S.A., UK Branch, UK Establishment No. BR014702, 12 St James’s Place, London, SW1A 1NX, as a distributor of the aforementioned fund (authorised and regulated by the Financial Services Authority) or by the Facilities Agent: GAM Sterling Management Limited, 12 St. James’s Place, London, SW1A 1NX, United Kingdom. Swiss & Global Asset Management is Februar not a memberyof2013 the Julius Baer Group. 21

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magazine... for today ’s discerning financial and investment professional


BREXIT AND BREAK IT? This year’s Davos conference on the world economy was neither shocked nor particularly shaken by David Cameron’s broadcast, on its opening morning, in which he threatened to put the question of Britain’s EU membership to a referendum in 2017 unless Brussels moderated its invasive attempts to erode the country’s sovereignty. In fact, it was more or less completely ignored. This was, after all, not an EU conference but a world one. But Cameron’s defiant stance was notable all the same. While the Eurozone itself has (correctly) been focusing on the crisis in front of it, he himself has been thinking beyond the short term and considering larger questions of economic


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growth and sovereign rights. As to whether his vision of the future EU is accurate, that’s for others to debate. The question is, by setting a deadline for a referendum on the UK’s membership in the EU, has Cameron overplayed his hand? The move has certainly got bankers, business leaders and ‘Davos Man’ worrying about the practicalities and implications of a “Brexit” – not to mention the potential impact on London’s position as a world financial centre and the effect on the EU as the UK’s largest export market. Just what they want when the fear of a Greek “Grexit” is preoccupying their minds.

Two Cheers For Europe

Cameron has some good points and honourable aims, to be sure.

“Europe is being outcompeted and out-invested,” he claimed, “and it’s time we made it an engine for growth, not a source of cost for business and complaint for our citizens.” “This is not about turning our backs on Europe – quite the opposite. It is about how we make the case for a more competitive, open and flexible Europe, and how we secure Britain’s place in it.” The Premier also pledged that he would campaign “with heart and soul” for Britain to stay in a reformed EU. But by handing the decision to the people, in the first half of the next parliament (and therefore by 2017), he has introduced an unnecessary uncertainty for investors

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magazine... for today ’s discerning financial and investment professional and for the UK’s European partners That uncertainty comes at a bad time for the UK economy. Just days after Cameron’s EU speech, the ONS released GDP figures for the fourth quarter of 2012. They confirmed that, with a contraction of 0.3%, the UK had technically experienced a triple dip recession. Of course, that would be one thing if it had been just a small bump on the road to recovery – but, as things stand, this now qualifies as the worst recovery since the nineteenth century - worse even than in the 1930s. Even before the Q4 data, the International Monetary Fund had started to hint that perhaps Chancellor George Osborne’s austerity plans should be relaxed. Osborne’s plan has been likened to tearing off a plaster slowly – it’s just as painful, and it lasts longer. Osborne had thought that the economic recovery would be complete and deficit-reduction

goals met by 2015, but so far just 25% of the shortfall has been cut. Even Greece and Ireland have managed much more than that. Part of the reason for Osborne’s steadfastness has been his desire to maintain the UK’s prized AAA rating – to him, a sign of approval from the market for his austerity plans. But now that Standard & Poor’s has put the UK on negative watch, the shadow chancellor Ed Balls is finding that his arguments - that Osborne is cutting public spending too quickly, and that higher spending and tax cuts are needed to create growth – are starting to stick.

The Triple Dip

So what’s the story behind the triple dip? Alas, it’s a tale of running to stand still. That fourth-quarter contraction confirmed that the economy had ended 2012 no bigger than at the start of the year. But the different sectors

of the economy are not on an even playing field, with some much worse hit by the recession and still struggling. The construction sector saw its output plunge 11% over 2012, and the mining sector had it even worse. Manufacturing is struggling, despite its strong recovery after the recession of 2008-09. Meanwhile the service sector, which accounts for almost four-fifths of the economy, grew by just 1.4% last year. The mixed bag of good and bad news points to potential long-term problems. On the surface, the fact that unemployment has stayed low - as have personal and company insolvencies too - is certainly good news. But if the workforce is actually expanding, as it did last year, while output stays stagnant, then that means that the economy is less productive than it was. Of course, the reasons for the drop in productivity could be short-term. For example, some

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March of the Zombie Debtors

Yet some economists worry that the UK’s productive capacity has been permanently scarred. The most efficient economies redistribute capital and labour to the best performing sectors and companies, depriving the poor-performers - because that’s how the survival of the fittest works. But a recent survey by the ONS found large productivity gaps between companies in the same sector. At the same time, the number of company insolvencies actually fell. That does not

mean that companies are not making losses – rather, perhaps, that they are being kept alive by banks which are extending (or cheapening) credit for old customers rather than taking the pain of a loss themselves if the businesses should fold. These so-called “zombie firms” are effectively helping to starve new businesses of credit. So labour and capital are not being reallocated to the companies that would put it best to use. If the UK economy cannot do that, a temporary output drag could turn into a long-term reduction in supply.

More Than Just Straight Bananas

So the UK economy clearly has its own internal problems. But imagine how much worse those would get if the UK and Europe - the destination for nearly half the country’s exports - were no longer freetrade partners with each other? Okay, there’s a stereotypical image of a

business owner’s attitude to the EU which seems to feature a market stallholder complaining about bureaucratic rules that govern the curve of a banana. Or perhaps a British plumber who’s worried that his new Polish rivals will undercut him. But the Confederation of British Industry (CBI) recognises the boost that Britain gets from being in the EU. DirectorGeneral John Cridland says that businesses value the even playing field for competition, and that they even see the much-maligned health and safety rules as protection against unfair competition.


businesses that rely on winning contracts, such as estate agents, always have a particularly tough time in a slump and must work harder to win clients. And those industries which rely on investment in innovation to drive productivity gains have seen an inevitable slowdown as capex drops. All those things ought to improve as momentum picks up.

No Halfway Houses

Mr Cameron imagines that even if the UK were outside of the EU, it would still be a member of a proposed transAtlantic free-trade agreement. He plans to use the UK’s presidency of the G8 this year to push for an EU-US trade deal conveniently forgetting that,

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magazine... for today ’s discerning financial and investment professional if the deal is between the US and EU, then the UK would by definition be left out if as soon as it left the EU. Without the EU, Britain alone does not have

country moving here has forced the government’s hand with other sources of immigration. Restrictions on workers, students and family members from non-EU countries have all been tightened, to

Cameron plans to use the UK’s presidency of the G8 this year to push for an EU-US trade deal the clout to be guaranteed a seat at the negotiating table. Cameron also imagines that even if the UK were not in the EU, it would still be able to be a part of the European Economic Area. But the EEA was only ever designed as a way to ease countries into the EU - not as a halfway house toward retreat for former full EU members who have got cold feet. EU membership is negotiated, not automatic, and it is unlikely that countries like France – already unamused by the UK’s standoffishness – would approve if we stepped backwards.

Thorny Immigration Issues Immigration is another area of concern for many Euro-sceptics. With Romania and Bulgaria set to gain full EU membership in 2014, their citizens will then be able to live and work in the UK without restrictions. It’s debatable whether there will be the tidal wave of immigrants that happened when the door was first opened to Poland in 2004– after all, the current economic situation is not as enticing as it was then. But the fact that the UK can do little to prevent anyone from an EU


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the point where businesses are complaining of a skills shortage. So far, Cameron’s vague vision of the UK’s future outside of the EU has not contained any details on how immigration rules would be adapted so as not to choke British businesses.

The Impact on Financial Services

There has been a mixed reaction to the referendum from the business world, with some, like the Institute of Directors and British Chambers of Commerce, backing the plan while others such as the City of London Corporation saying it just creates uncertainty and risks making the UK less attractive as an international centre. The asset management industry also has its concerns, and not just about the distant future. The industry has benefited from the single market that is the EU, selling its products across the region under Ucits and Mifid rules. The IMA has stated that, even if the UK does stay in the EU post-referendum, the uncertainty in the meantime about the UK’s position will

reduce its influence in shaping new regulation and tax law. If the UK really did leave the EU, says the theory, British firms distributing funds in the EU would face new barriers. And international firms could reconsider whether to continue to domicile funds in London - particularly if they have large subsidiaries or sales networks elsewhere.

All In This Together

For some, the spectre of a Brexit may loom large at the moment. But for others, more immediate economic concerns like the continued economic stagnation are front of mind. And no wonder. It’s true that recessions following bank crises generally take longer to recover than ordinary cyclical recessions. But the economy has only grown by 0.5% since Osborne’s original spending review – sharply less than the 6% he predicted in the original deficit reduction plan, and Q4 GSP was 12.1% lower than if the economy had followed the typical recovery path. While 2017 – the year of referendum - may seem far away, the UK economy is unlikely to have significantly picked up by then. The Economist Intelligence Unit predicts that real GDP will grow by just 0.5% in 2013 and an average of 1.1% from 2014 to 2017. It is hard to tell whether another four years of stagnation will help or hurt Cameron’s cause. His strategy could lead to a more competitive, faster growing EU, which the UK wants to be a part of - or it could backfire, leaving the UK out in the cold. The best we can hope for is genuine, informed debate on the matter – fully analysing the pros and cons of EU membership, and communicating the costs of leaving to the public. For more comment and related articles visit...

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magazine... for today ’s discerning financial and investment professional


The short-term behaviour that led to the financial crisis, and the knee-jerk reaction to it, caused many investors to forget the fundamental reason for investing in equities – namely, gaining investment exposure to growing company profits and dividends over the longer term. And that’s a pity. Smaller companies have a long history of growing more quickly than bigger ones, and active managers have long proved themselves capable of adding value at the smaller end of the market. The outperformance of small caps in 2012 reflected a more assertive recovery than we witnessed in 2010 and 2011. And it’s far from over. There are a number of reasons to believe that the momentum of smaller companies is still building, pointing towards a very exciting year ahead.

The smaller the company, the greater the outperformance Stock markets in the short term are influenced by investor sentiment. Once this noise is stripped away, share prices are fundamentally driven by profit growth. Smaller companies outperform over the longer term because it is easier for them to grow profits more quickly; intuitively, it’s a lot easier to double £1 million of profit than it is to double £500 million. Smaller companies therefore have the ability


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“Smaller companies outperform over the longer term because it is easier for them to grow profits more quickly”

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Active management Then there’s the fact that this potential for outperformance among smaller companies can be magnified by active management. Active management generates the most value when an asset class is inefficiently priced. And with smaller companies, a lack of analytical research and market coverage by fund managers creates pricing inefficiencies which are typically exacerbated following a period of volatility. So we see that manager expertise and a focus on smaller company shares can create the opportunity for significant outperformance. For proof, let’s look at the performance of


to grow profits significantly faster than, for example, the constituents of the FTSE 100. Moreover, they are naturally exposed to the growth sectors of the economy. They’re more likely to be at the forefront of innovation, and more likely to be operating in an entrepreneurial environment. What’s more, they are now able to compete globally, because technology has created a level playing field for even the smallest of businesses. Don’t underestimate this final point. The days of the smaller company index being dominated by cyclical domestic industrials are long gone: indices are now comprised of businesses that earn their revenue and profits from all corners of the globe.

the IMA UK Smaller Company sector (which tracks the performance of small cap fund managers), compared to the FTSE Small Cap, the FTSE All Share and the FTSE All Share funds over the last 18 years – i.e, as far back as the comparable data goes.

Why is this relevant today? The major events of 2008 and 2009 created a nervous short-termism where investors fled in their droves to ‘safe’ large caps and bonds. But the last year has seen a shift in investor behaviour, as the noise has started to dissipate. Investors have refocused on fundamentals, and money has started to switch back into equity funds. The early weeks of 2013 have seen the biggest inflow into equities for five years, as mid and small cap indices have started to outperform. And we don’t believe that this switch is simply because the return on fixed income is so paltry. Rather, it’s because equities, and smaller company equities in particular, remain relatively cheap, and that investors nervous about inflationary

IMA UK Smaller Companies Growth 1995-2012 Against FTSE All-Share, FTSE Small Cap and IMA All Companies

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magazine... for today ’s discerning financial and investment professional pressures are now looking for growth. Yet, even after the performance of smaller companies over the last year, and the recent change in investor behaviour, investors still haven’t missed the boat. Smaller companies are still trading at a discount to larger companies, and the FTSE Small Cap Index is still trading at a significant discount to its 2007 high. This shows that the recovery has yet to travel all the way down the stock market which is why we believe companies at the smaller end of the small cap market are set for a strong year. By their very nature, they exhibit the most exciting growth prospects but have yet to participate in the rally that mid and larger small caps enjoyed last year.

Grasp this opportunity From an investment point of view, the financial results of many smaller companies have been strong over the last year – something that’s reflected in the increasingly confident mood of management teams and a welcome trend toward growth-oriented ventures rather than mere cost-cutting. This latter point is well illustrated in the success of the IPO market, which was

particularly strong in the second half of last year with companies such as WANDisco plc (+220%), Blur Group plc (+77%) and Fusionex International plc (+73%), all floating on AIM and performing very strongly since (price performance as at 21 January 2013). Another strong indicator is in the level of merger and acquisition activity which always tends to expose undervalued companies. 2012 saw a number of companies being acquired at significant premiums, and we believe this trend is set to increase in 2013. Certainly, the preconditions for an M&A boom seem to be present: larger companies, having paid off their debts, are now better capitalised than they have been for a decade, and low interest rates are not offering a return on their cash balances. And let’s also remember that some sectors are dominated by large companies that have significantly under-invested in intellectual property in recent years, and which are now behind the pace of social and technological change. We anticipate an increase in the number of acquisitions of small innovative companies, which in turn will attract the interest of the investment community. So there we have it. After a strong year, smaller companies are at long last starting to attract more investor attention. Despite the recent outperformance, there are still longerterm historical characteristics of smaller company investing that we believe add weight to the case that the asset class is set for further exciting returns in 2013 - especially for the smallest companies in the market.

“We anticipate an increase in the number of acquisitions of small innovative companies, which in turn will attract the interest of the investment community” For more comment and related articles visit... 30

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magazine... for today ’s discerning financial and investment professional


What are you expecting from 2013? For me, it’s a most important year. 50 years ago this July, I started work in the City of London. In my late teens – and without the benefit of a university education – I joined a firm of stockbrokers as a back office clerk. Six months later I was running around the floor of the London Stock Exchange as an Unauthorised Clerk, or Bluebutton (as those of us who were not authorised to deal in stocks and shares were known). The rest, as they say, is history. A half century in the securities and investment business has encompassed a transformation of our industry that would match any changes wrought in other spheres of activity. Trading was conducted faceto-face until the 1980s. Whereas, today, computers carry the bulk of trading traffic. And regulation was a word seldom mentioned, though the self-regulation of the Square Mile was reasonably effective. But then came Big Bang in 1986, which abolished restrictive distinctions in the City and also allowed the foreign ownership of firms. It was exciting, it was progressive, it was

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leading-edge liberalisation . And it ensured that a more formal regime was needed. The task of reviewing the new regulatory needs fell to an academic, Professor Jim Gower, who is sadly no longer with us. I was privileged to give evidence to his enquiry on a personal, one-to-one basis. And he confided to me that, having undertaken the task, his concerns had shifted from the possibility of fraud (the early 1980s did see some rather spectacular examples of the unscrupulous separating the unwary from their cash) to questions about the levels of competence within the investment industry.

Qualifications? That wasn’t entirely uncharted territory at the time. The Stock Exchange had already introduced an exam-based approach to ensuring that people who were actively engaged in the business of selling or advising on stocks and shares had acquired an appropriate level of competence. But no such regime had been introduced into the IFA or direct-selling part of the investment industry. Of course, it swiftly followed. Those with long memories may recall that one of the early results of a more formal regulatory approach was the 1992 prosecution of the Barlow Clowes swindlers - for which, incidentally, the government ended up footing the £153 million compensation bill. Peter Clowes, for his part, was jailed for 10 years, of which he served four.

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ALL THAT... Regulation?

This year of course sees a whole new regulatory system being introduced, with RDR changing the way in which advisers are paid. As with any change in the way in which business is conducted that is driven by government – or quasi-government – initiative, there will be aspects that will require amendment in the light of experience. But the aim of creating greater transparency must surely be applauded.

Which Way Now? I have little doubt that, as the years go by, so practioners in the investment industry will see even more dramatic changes to the way in which they conduct themselves and advise their clients. What will not change, though, is the opaqueness that surrounds future investment trends. Knowledge of the future direction of markets is denied to all of us – thank heavens. As the great J K Galbraith once remarked, there are

two kinds of forecasters – those who don’t know and those who don’t know they don’t know. The year ahead is as complex and unfathomable as any, but there are some encouraging signs. An appetite for risk amongst investors is slowly returning, encouraged no doubt by the fact that we have so far avoided the worst consequences of the financial crisis that threatened to engulf us. And there is more governmental cooperation in this global village of ours that anyone could have thought possible a generation ago. Geo-political threats and demographic trends may yet unseat optimistic predictions, but I believe the year ahead should be viewed with confidence. But then, I always have been a glass half full type of investor. For more comment and related articles visit...

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magazine... for today ’s discerning financial and investment professional



At a time when most of the developed world is still digging itself laboriously out of the economic mire left by the credit crunch, growth rates in Africa continue to be startling. Last year’s real GDP growth of 4.5% could have shown a clean pair of heels to almost anywhere in the world apart from India and China – and this year’s 5% forecasts from the International Monetary Fund and the African Development Bank were made before the financial recovery of this spring had kicked in. The likely outturn will be even better than that.

Many of the countries that I’ve included in the table opposite have endured vicious civil wars and famine over the last few years. Others, like Zimbabwe, are still too politically risky to contemplate. And there are many troubled northern states – Mali, Somalia, Democratic Republic of Congo – where no likelihood of a viable investable economy exists at present. But look at

Angola and Ethiopia, which have both had five consecutive years of double-digit GDP growth, and the potential ought to speak for itself. So can this economic growth be translated into investment opportunity? By all means, in many cases. But first, a general word of warning. While these growth figures are factual, they don’t show what that growth is actually composed of. And this is where we need


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Capital Market Growth

The rate of advance in the development of capital markets has been almost as impressive as the economic record. In 1989 only five sub-Saharan African countries had stock markets, and now there are thirteen – in addition to Egypt, Morocco, Tunisia and Sudan in the north, of course. Between 1992 and 2002, African stock market capitalisation more than doubled from $113bn to $245 billion. Kenya alone increased its capitalisation twelvefold in the ten years to 2011. But, as an IMF report from

2007 warned, most (apart from South Africa) were small and featured few listed companies. Low business volume means that liquidity is also a problem especially for open-ended funds. As we’ll see shortly. Back in June 2010 the McKinsey Quarterly ran an article entitled ‘What’s driving Africa’s Growth?’ which identified four key reasons for the emerging trend. First, it said, was the action by many governments to end armed conflicts. Secondly, microeconomic reforms had been implemented to create a better business climate. Thirdly, action had been taken to reduce inflation, which had declined from an average of 22% in the 1990s to just 8% in the early years of this century. “Finally,” it continued, “African governments increasingly adopted policies to energize markets. They privatised stateowned enterprises, increased the openness of trade, lowered


to be a little careful, because a substantial proportion of it turns out to be based on commodities, both hard and soft – a volatile sector which can turn from friend to foe in an instant. We need to know either how much is being contributed by manufacturing industry, or to resign ourselves to the commodity cycle risk.

corporate taxes, strengthened regulatory and legal systems, and provided critical physical and social infrastructure.” Consequently, McKinsey said, the annual flow of foreign direct investment into Africa had increased from $9 billion in 2000 to $62 billion in 2008 - and that, although the resources sector had attracted the most investment, cash has also flowed into tourism, textiles, construction, banking and telecommunications.

Just How Real Is That Growth?

And that, on the face of it, is a summary of the main reasons behind the prevailing consensus that Africa is bound to boom. Blessed with abundant resources, enjoying a more stable political and economic framework, and supercharged with the indispensable force of increasing and youthful populations. But is that consensus view correct? Not according to

African Real GDP – 2003-2013 Territory 2003














































































Developed countries 1.9












2010 2011p 2012e 2013e

Key: e = estimated, p = provisional. Source: African Development Bank/IMF

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magazine... for today ’s discerning financial and investment professional development consultant Rick Rowden, who argues that it’s just wishful thinking. Rowden’s article in the January 2013 issue of Foreign Policy magazine, ‘The Myth of Africa’s Rise’ ( amcgzjz) insists that the real test of whether or not an economy is developing is whether it is moving out of activities that provide diminishing returns over time, such as mining or primary agriculture, and into ones like manufacturing and services. In practice, he maintains that this process of transition and diversification has been abandoned in Africa in favour of the dictum of free market economics: that they should integrate into the global economy just as they are. “For many champions of free markets,” he says, “the mere presence of GDP growth and an increase in trade volumes are euphemisms for successful economic development. But increased growth and trade are not development.” Rowden highlights a recent UN report that he says shows that, despite some improvements in a few countries, “the bulk of African countries are either stagnating or moving backwards when it comes to industrialization”. “The share of manufacturing value added (MVA) in Africa’s GDP fell from 12.8% in 2000 to 10.5% in 2008,” he says, “while in developing Asia it rose from 22% to 35 % over the same period. There has also been a decline in the

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importance of manufacturing in Africa’s exports, with the share of manufactures in Africa’s total exports having fallen from 43% in 2000 to 39%in 2008. In terms of manufacturing growth, while most have stagnated, 23 African countries had negative MVA per capita growth during the period 1990 - 2010, and only five countries achieved an MVA per capita growth above 4%.” Furthering his case, Rowden says the report shows Africa’s share of global MVA fell from 1.2% in 2000 to 1.1% in 2008, and that its share of global manufacturing exports barely moved up from 1% to 1.3% over the period.

Pan-Africa? No Such Thing But it isn’t just this author who’s sceptical of the rose-tinted consensus. Fund managers too have been critical of the tendency to think of Africa as some sort of homogenous whole. “Africa is made up of 52 countries,” says Emily Fletcher, vice president of the BlackRock emerging markets team, who works with manager Sam Vecht on the BlackRock Frontiers investment trust. “And they are not homogenous, either in terms of political set-up, economic structure or indeed stock market liquidity.” Malcolm Gray, portfolio manager in Investec Asset Management’s frontier and emerging markets team, concedes: “The observation on [the lack of] manufacturing is partly correct, but it’s changing, and [Rowden] misses out strong jurisdictions such as north Africa and South Africa.”

Africa, he stresses, is very much more than a commodity derivative. It’s a demographic derivative (i.e. a consumption play), a labour market play and a service industry play. “Singlelens observations are always good for headlines,” he says, “but they miss the real complexity of the emerging Africa story.” Emerging and frontier market pioneer fund manager Mark Mobius of Franklin Templeton and manager of Templeton Africa fund, clearly sees the opportunities in Africa, but is by no means unequivocal about the prospects. Mobius talks about the problems companies can face, including corruption and a lack of infrastructure. For instance, he says, some companies have to generate their own electricity because they do not have access to public power. And the reasons may be complex. “Opportunities may be limited in Africa because of government monopolies or subsidies,” he warns. “For example, electricity in Nigeria is subsidised and subject to restrictions which make it generally unprofitable to be in the business of power generation there.” “We look at specific obstacles like this that could impact a company’s operations,” Mobius continues, “and at what cost. These are things that are less likely to be ascertained by just looking at balance sheets or profit-and-loss statements.”

A Growing Upside

And yet Mobius does see signs of change, and more particularly a willingness of

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Open Versus ClosedEnded Funds

Although Africa is a tempting prospect, there are still relatively few ways of gaining access to the market. And that problem was not exactly helped by the fate of the New Star Heart of Africa fund, an open ended fund which launched in November 2007 but closed in March 2009. Part of the problem with New Star’s fund was that it was

an open-ended fund that invested primarily in rather illiquid subSaharan markets, where it proved to be unable to meet investor redemptions. What made it worse was that the failure coincided with other problems for the company’s European Property fund – another open-ended fund based on another fundamentally illiquid market. So perhaps this was more of a ‘bad timing meets bad judgement’ story? Either way, the fund was eventually sold to ‘alternative asset manager’ Duet, which runs two Africa funds – Africa Opportunity and Africa Index. This setback did not deter other UK managers from launching open-ended Africa funds: both Neptune Africa and JM Finn Africa are currently available. But closed-ended structures like investment trusts enjoy some advantages when it comes to exploiting the potential for such small, illiquid markets. This is partly, of course, because they don’t have the problems of meeting daily redemptions. And then there’s the fact that investment trusts are open to variations in company structure. For instance, Blackrock’s Emily Fletcher told IFA Magazine that the BlackRock Frontiers investment trust was set up with a five year life in mind. “This means that at the end of five years all investors can sell one or all of their shares at NAV less costs,” she told us. “This means that the fund management team don’t have to be concerned with short term flows in and out of the fund.” Other players include Luxembourg-domiciled funds such as Malcolm Gray’s Investec Africa Opportunities, JP


governments to tackle these issues. He says he can see the potential in African businesses, and he emphasises that the manager’s aim should focus on the quality of growth based on the burgeoning middle classes. Arjen Los, CIO of Dominion Funds, has more to say about the growth of diversification. 2012 was a poor year for commodities, he says, but SubSaharan Africa GDP still grew at a rate of 5% during 2012. “There is already a large amount of on-the-ground evidence for Africa’s development away from commodity dependency,” he says. “One good example is the Kenyan mobile pay system M-Pesa, which is now used by 40% of the adult population. M-Pesa facilitates an average of $320 million in person-toperson transfers every month – that’s 10% of GDP on an annualised basis. This is also mirrored elsewhere in Africa, as telecoms companies such as MTN become among the largest companies on the continent.”

Morgan’s Africa Equity, and Mobius’s Templeton Africa. And then there are the various ‘frontier’ global funds that may have Africa as part of their remit. A point to bear in mind here is that it helps to check the mandates in order to see just how direct is the actual investment in Africa. For instance, Claire Peck, client portfolio manager for emerging market equities at JP Morgan Asset Management, says the fund’s investment policy is “to directly invest in frontier markets in Africa, as well as resource stocks listed on major markets with 50% of their activity being in Africa.” So there might be very large foreign-owned multinationals in these sorts of portfolios. The London Stock Exchange include a number of Africa ETFs based on the Johannesburg Stock Exchange index – the only index in Africa with sufficient liquidity. But the LSE’s main list and AIM list feature a number of separate African companies, and not all of them are South African miners. For instance, you’ll find Zambeef, a diversified agricultural stock from Zambia, on AIM. More direct investment in African markets other than South Africa is highly restricted. I could not find one single stockbroker offering clients shares on African markets. This is not to forget the private equity route which has seen huge inflows in recent years, but this crowdfunding for the seriously rich is available to only very few clients because of the size of investment required.

“Many of the countries have endured vicious civil wars and famine” For more comment and related articles visit...

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magazine... for today ’s discerning financial and investment professional

JANUARY MADE ME SHIVER YOU WON’T KNOW WHAT YOU’VE GOT TILL IT’S GONE, SAYS STEVE BEE. AND PROBABLY NOT EVEN THEN... Most people are said to know where they were and what they were doing when Kennedy died. Don McLean supposedly knew where he was when Buddy Holly died; he even wrote a song about it. But I wonder how many people today would be able to say where they were and what they were doing the day S2P died? Not many, I’ll bet. And yet these current reforms are the biggest thing to hit our pension system since the Lloyd George reforms over a hundred years ago. Most people probably wouldn’t even know what S2P is, I’d say, let alone be aware of its impending demise come April 2017. In fact, if it ever comes up as a question on Alexander Armstrong’s Pointless quiz show on the BBC, my guess is it’ll be one of the pointless answers that are so prized by the contestants. (The show itself isn’t pointless, by the way, indeed it’s quite good. It’s entitled Pointless because contestants have to try to score as few points as

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possible by coming up with answers that no-one else can think of.) But anyway. “Do you know what S2P is?” is one of those questions that would catch most people out for sure. And my guess is that if you asked one hundred people if they knew what S2P was, ninety-nine would say it’s the French railway system and the other one would say No. Don’t take my word for this, by the way, if it’s a nice day any day soon, pop out in the street at lunchtime and try it yourself. If you’re of the opinion that the great British public are all closet pensions experts you’re in for a shock, that’s all I can say. Believe me; I tried it on the tube. Not one person in my carriage that morning had ever heard of S2P. Come to that, neither had the constable in the railway police or the platform supervisor who took me away

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for an interview with the station manager, due to the harassment complaints made by the people who pulled the emergency cord. I wouldn’t be surprised if the station manager had never heard of S2P either, but even though we spoke for over an hour, the subject somehow never came up. To be honest I hardly got a word in. I probably wouldn’t have been using the tube that much any more anyway; I prefer to walk, and it’s cheaper. But that’s the trouble

with major changes to the pension system if you ask me. All of us in the industry think that S2P becoming a flat-rate appendage to the BSP is pretty mega. So do the Government people who put the legislation together, and the civil servants who write up all the rules and regulations up. But that’s as far as it goes. Basically, nobody else cares. And that’s the problem in a nutshell really. We’ve got a pension system in the throes of major change, but no-one even knew what it did before the change. So the whole subject’s got “So what?” written all over it, as far as Joe and Josephine Average are concerned. That’s why I’m considering writing to Justin Bieber to see if he wants to record the song I’ve just written...

Steve Bee, a well-known campaigning pensions activist, is the managing pensions partner at Paradigm and the Founder and CEO of www.jargonfree


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magazine... for today ’s discerning financial and investment professional


So are we witnessing the beginning of the end of the 30-year bond bull market? Is it time to really pile into shares? How about corporate bonds? Are we still in danger of triple dipping? Is the Eurozone saga really on the road to resolution at last? Is yet more central bank money printing in Japan and the US justified? And how much longer will we have to contend with rates at close to zero? The honest truth is, we really don’t know. What does seem certain, though, is that those important questions aren’t going to disappear anytime soon. And with that in mind, investors,


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advisers and institutional wealth managers looking to manage risk and minimise loss are increasingly favouring one of the most trusted investment strategies: diversification. This increased focus on diversity is being expressed in the strong growth in demand for multi-asset funds over the last year. Such funds typically boast considerable freedom in allocation, both across asset classes - such as equities, bonds, alternatives, and cash - and geographies. This extensive remit means they come in many flavours, offering investors a rich risk-return spectrum from which they can make their choices. But what makes the DFM route such an attractive way of getting there?

Hard-To-Find Statistics

The sheer diversity of multiasset products means that it is tricky assessing their global uptake, but fund data provider Lipper does give us a decent

proxy assessment of their popularity in recent years. We need to remember that the Lipper data relates strictly to funds which have no asset allocation restrictions – meaning they can invest in cash, bonds, property, alternatives, commodities and so on – and they rarely follow a benchmark. Such funds could, for example, invest up to 100% in equities if markets are bullish and swing back to 100% in, say, bonds if markets are bearish, although, in practice, such extremes are rarely if ever exercised by managers. According to Lipper, net sales of such funds totalled £3.4 billion in 2009, rising to £8.5 billion in 2010. In 2011 sales dipped to £6 billion - although this was in line with the wider trend across the fund industry. And 2012 saw a renewed sales growth to £8.3 billion. Judging by the feverish pace at which new multi-asset solutions are being launched,

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institutions seem to be expecting another strong performance over 2013. Just over the last couple of months we have seen the likes of Old Mutual, Coutts, EFG Asset Management, Mirabaud, James Hambro and FOUR Capital Partners all bring new multi-asset funds to market.

Aviva’s Approach

Aviva Investors’ offerings in the multi-asset market consist of five funds which span a broad risk spectrum - from defensive (Multi-Asset Fund I), through to “adventurous” (Fund V). A key characteristic of the Aviva funds is that as market conditions change, the risk levels associated with each are adjusted accordingly - but that they will always aim to remain within the relevant risk range for a particular fund over the medium to long term. Demand for these funds doubled in size last year, says Justin Onuekwusi, who manages Aviva’s multi-asset funds. And although the economic and market uncertainties we’ve mentioned are central to driving demand for multiasset strategies, he also points to risk and governance controls as major stimuli. RDR and similar regulatory tightening throughout Europe now mean that there is a greater emphasis on making sure that solutions meet client attitude to risk, he says. “And in this new regulatory world, advisors and brokers have to evidence

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that they have the expertise to build client solutions.” “That naturally means that advisers are increasingly outsourcing this capability to fund managers who have the resources and the expertise to manage the client’s portfolio in its entirety.” Onuekwusi is keen to emphasise that is actually asset allocation rather than stock selection that is widely regarded as the largest determinant of long-term risk, and therefore investment returns in a multiasset portfolio. To illustrate the point starkly, he notes that US equities outperformed Japanese equities by 7.76% in 2012. So the choice between allocating to Japanese or US equities mattered more last year ¬than the 1-2% outperformance that an active Japanese equity manager might have achieved over a passive manager.

Getting More Adventurous

Onuekwusi says that in recent years investors have increasingly been urging their multi-asset fund managers to allocate assets more actively. The growth of truly dynamic asset allocation strategies increase since 2008 has been properly astounding. But then, managers who were able to adjust their portfolios in the midst of the credit crisis demonstrated a greater ability to deliver better risk-adjusted returns. Consequently, multi-asset fund managers now place more

emphasis on their dynamic asset allocation and less reliance on long-term static allocations, he says. But how about allocation? As you’d expect, the traditional balanced fund structure is still popular - typically invested in the usual mix of equities, bonds and cash. More recently, however, Aviva has seen the emergence of alternative investments as asset classes. “Investments such as real estate, commodities, infrastructure, and absolute return funds are now much more investable,” he says. “And multi-asset funds will continue to increase their allocations to these areas - firstly because these asset classes tend to perform differently from traditional asset classes, so therefore over time they’ll add diversification, and secondly, because alternatives simply give more “levers to pull”.”

Misplaced Fears

Over at Rathbones, David Holloway, head of marketing for the investment manager’s unit trust group, feels that RDR and the regulatory pressures governing suitability of products have been major factors supporting growth in demand for multi-asset funds. Holloway recalls that during the latter half of 2012, with RDR just around the corner, advisers were approaching Rathbones to find

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Costs Versus Benefits

Rathbones says it’s seeing demand for the funds across the board, both from institutional clients and from advisers who it says are seeking its expertise and experience both in fund selection and asset allocation and in the macro overview. Holloway believes that the cost of multi-asset fund management is bound to reflect the effect of charges on the underlying funds. Advisers who are concerned about costs might be seriously tempted to create their own baskets of funds and opt out of the DFM route, he warns, but they are likely to face hurdles such as a lack of buying power and a lack of resource and expertise. Whereas large organisations with huge ‘institutional-style’ buying power


out more about its asset allocation outsourcing capabilities. Some appeared to be worried that going down the multi-asset DFM route might jeopardise their allimportant relationships with their clients. But, in practice, he says, the DFM route can produce solutions that will allow advisers to manage their own clients. And indeed, to do so in a way that might otherwise have proved challenging, not least for cost reasons. Rathbones’ own multiasset solutions comprise a set of three funds catering for different risk profiles over different time frames. The Rathbone Total Return Portfolio, the Rathbone Strategic Growth Portfolio and the Rathbone Enhanced Growth

More broadly, his team expects demand to increase as market volatility continues and with it uncertainty over which assets will perform well in the future. “Advisers will turn to multi-asset products with a forward-looking approach to investment as they seek to monitor the amount of volatility within their clients’ portfolios – products that are mindful of the correlation between asset types and that place as much emphasis on the risks taken to achieve the outcome as the outcome itself.”

Aligning The Risk Profile

Over at Premier Asset Management, Mike Hammond, head of sales for multi-asset businesses, also highlights “strong growth” in demand for the firm’s multi-asset solutions during 2012. Demand for such

“The DFM route can produce solutions that will allow advisers to manage their own clients” Portfolio all aim to reduce risk by investing in a variety of different assets - but they have no bias toward asset classes or geography. Rather, the key for Holloway and his team is that they understand how each asset class will behave through the market cycle - and, more importantly, the correlations that these asset classes have to each other, particularly looking forward. For this reason the funds invest across all asset classes including traditional equity, hedge funds, commodities, private equity and loans. “We monitor correlations constantly,” says Holloway, “but more formally every six weeks to ensure that our asset allocation is dynamic enough to be robust in challenging markets.”

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(Rathbones invested £7.5billion in funds at year end 2012) are able to keep costs much lower. Its I-Class shares carry an annual management charge of 0.75%, with a nil initial charge. “A multi-asset specialist fund manager will have access to a large range of products, funds and investment vehicles that help them to be in the right place at the right time for the most appropriate investment opportunities. Using multi-asset products relieves financial advisers of much of the burden of ongoing monitoring of asset allocation, allowing them to concentrate on the relationship with the client, their changing circumstances and assessment of their changing attitude to risk over time.”

products from income hungry investors was particularly buoyant as they looked to offset the low interest rate environment. “Performance is obviously paramount,” Hammond agrees, “and despite the volatility of the past few years, our multi-asset funds have continued to deliver on their income and growth objectives, whilst generating clear outperformance of their peer groups.” But, he adds: “with markets indecisive and volatile, advisers are naturally turning to DFM groups with the experience and proven expertise in this space.” Costs will always have a role to play within the IFAs

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magazine... for today ’s discerning financial and investment professional decision making process, says Hammond, but he believes it is vital for them to ensure that they are analysed in context of the value added: “Naturally, advisers will need to explain the cost differentials to their clients, ensure they understand the charges associated with managing and administering an investment and how this impacts on the returns they can expect,” he says. “But costs are just one part of the package. What is really important is whether the overall objectives and the risk profile of an investment are aligned with the client’s own profile and whether the performance returns achieved by the fund manager justify the fees and expenses.” Premier has “a clear and transparent” charging structure, he says, based on entry levels. The firm’s Class A shares across the fund range are accessible for a minimum of £1,000 and generally have an associated annual management fee of 1.5% and initial charge of 4%. Class B shares are accessible for £50,000, with an AMC of 1% and no initial charge. Class C shares, usually for institutional investors, have a minimum investment level of £250,000 and a lower AMC of 0.75% and come with no initial charge.

As for the client, spreading of investment risk is of course a primary attraction. But Hammond is keen to highlight other advantages of multi-asset products, including access to some of the best funds and managers; easier tracking through holding a wide range of investments within a single fund; low minimum entry level of just £1,000; and tax efficiency, with buying and selling that takes place within a multi-asset fund free of Capital Gains Tax.

Risks and Rewards

With RDR increasing the pressure on advisers to ensure the continuous appropriateness of an investment for their clients, Hammond agrees that risk-rated multi-asset funds will experience particularly strong growth in demand going forward. Such solutions, designed to achieve performance within agreed riskparameters, will allow advisers to use their own modelling tools to segment their client base and feel confident on the ongoing suitability of an investment while their client’s own risk profile remains unaltered. The manager’s core multi-asset funds - Premier Multi-Asset Distribution, Premier Multi-Asset Growth and Premier Multi-Asset Monthly Income Funds - all generated top decile performance over 2012 despite the ongoing market uncertainty. The Distribution

and Monthly Income funds are the key offerings, the former focused on paying an income that rises over time, with some long-term capital growth; the latter on providing the potential for a high and sustainable, natural income, paid monthly. Asked where the allocation bias currently lies across the funds, Hammond says the management team favours equities where appropriate, because every other major asset class looks “unpalatable” on a risk-reward basis. And Hammond says that Premier is “backing slowly away from corporate bonds - the demand and supply dynamics look favourable, but valuations are beginning to look stretched.” After a strong 2012, Hammond is predicting another healthy outturn for the multiasset market over 2013: “We believe the attractiveness of multi-asset funds will continue to grow rather than wane as advisers continue to look to outsource elements of their business and focus more on developing business models that support better client servicing and producing added value to justify a more transparent fee structure.” For more comment and related articles visit...

“With advisers having to ensure the continuous appropriateness of an investment for their clients, risk-rated multi-asset funds will be in paticular demand” 44

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magazine... for today ’s discerning financial and investment professional

STEP BY ST E NEW CHARGING STRUCTURES HAVE OPENED UP NEW AVENUES FOR ADVISERS, SAYS SUE WHITBREAD FROM THE INSTITUTE OF FINANCIAL PLANNING. ARE YOU READY FOR THEM? Dealing with change is one of the hallmarks of any successful professional. And this year we’ve witnessed some of the biggest changes the financial services sector has ever seen. Those who will thrive in this brave new world will be those who adapt their business model to deliver the kind of service that their clients expect. The emphasis is now firmly on the need for advisers to be able to clearly demonstrate to their clients the value of the service they can deliver. Okay, that sounds easy enough, but how can advisers achieve this in practice?

The Planning Imperative At the heart of it, we know that clients are not

really all that interested in which products or platforms are recommended to them. Even the cost of some of this is secondary if they really trust the individual adviser and the company that they are working with, in the knowledge that their needs are being put first and foremost. What really matters is that they have a plan. A realistic and achievable plan that helps them to finance the goals they have in life – or, in other words, a Financial Planning service. Financial Planning is quite different from the familiar transactional approach, in which discussions focus mostly around the technical aspects of products such as pensions or investments. We can summarise it in a six step process (see below).

FINANCIAL PLANNING: THE SIX STEP PROCESS 1. Establish and define the client/planner relationship 2. Gather client data including goals (collection) 3. Analyse and evaluate financial status (analysis) 4. Develop and present Financial Planning recommendations and alternatives (synthesis) 5. Implement the Financial Planning recommendations 6. Monitor Financial Planning recommendations and changing client circumstances and goals


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EP GUIDE Of these six steps, perhaps 1 and 2 are the most important. They are also often the most time consuming, in defining the nature of the service and the setting out of clients’ goals. A Planner will spend considerable time with his or her clients, drilling down and identifying those goals that are most important for the client to achieve. These can be classified as short, medium and long-term goals. And all of these then need to be prioritised, and assumptions made about timescales and costs. This data is all captured, and it then forms the basis of the plan. Once the planner knows what it is that the process is trying to achieve, he or she can then look at what financial resources the client has available, both now and in future, in order to enable these goals to be met. The output from the Financial Plan will give clients the confidence and context to run their lives better, and to enjoy their assets in a way which suits their risk tolerance and the priorities that they have included in their plans. These very personal priorities will inevitably touch upon emotionally sensitive issues for some clients - and the adviser therefore needs to a way of dealing with all this. But the benefits will be long-lasting. Clients will happily pay for such a service on an ongoing basis if they feel that their interests are at the heart of the relationship, and if they can see they are on track and evolving as their own lives change and develop.

skilled Planner can give his clients the context and the ability to make better decisions, based on a discovery process that really does challenge their thinking and their priorities. After all, few of us have properly thought through our true goals and objectives, discussed them with partners and families and done anything about it. Really great Financial Planners are able to deliver this service.

Soft Skills So, having spent years developing an advanced level of technical knowledge, advisers now need to ensure that they also have the advanced soft skills that are so essential when it comes to delivering such a service. Some will seek the help of life planners and coaches, taking aspects that they like and

“Clients will happily pay for such a service on an ongoing basis if they feel that their interests are at the heart of the relationship”

Further Opportunities So there are always changes to be reviewed at review meetings, and experiences to be discussed. And this in turn will naturally lead on to other financial areas being discussed as a matter of course. Which is where the additional opportunity lies. Many of these issues will have been signposted right at the beginning of the plan, and they will get drawn out as part of the planning meetings. People don’t go to see a financial adviser to get a Financial Plan, but that is what they actually need. The Plan itself has no value; rather, the value lies in the process and the engagement that the Planner can supply. A

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are comfortable with to embrace in their own processes. And some will religiously follow the particular style and will become experts in that particular method. This is usually because that style suits their personality and capabilities. But most advisers will be able to make significant improvements to the service they provide by understanding the Financial Planning process, and by having a very clear client proposition. Time can then be spent understanding how their soft skills can be best improved to inspire, motivate and enthuse their clients (and prospective clients) to action.

Time For An Upgrade? It’s probably fair to say that many advisers are feeling rather exposed these days in an environment where they have to ask for a fee and then deliver the service that is going to justify that fee. Unfortunately, that often comes down to a lack of skills training and development among advisers. Februar y 2013

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magazine... for today ’s discerning financial and investment professional Firms are already telling us that this is a challenge. But we are also seeing it among candidates who are going through the Certified Financial PlannerCM certification process. Their ability to synthesise and uncover those aspects that are really important to a client is often exposed by the lack of training and development in these areas. IFP’s Integrated Financial Planning programme really should be a must for those going through level 4 and wanting to fully understand the Financial Planning proposition and how to sell it to clients. This is a game-changing year for advisory businesses, after all, and a valuable opportunity to upgrade the level of service provided. The focus of the IFP course is on the skills needed, of course, but also on the actual

application of knowledge. It also covers the skills needed for candidates who want to sit the Certified Financial Planner CM qualification, which will take them to level 6. We find that the advisers who have so far attended the programme have not only refocused their attention but have also gained in confidence as to where the value of their service really lies. They can more effectively demonstrate this value to their clients and establish trust, generate more realistic fees for the work that they are doing and build profitable, long term business relationships.

Anything Else? When it comes to business processes, of course, there are a number of areas where improvements can be made. But as a general

“We hope that advisers will embrace the change enthusiastically, and we look forward to more consumers being able to benefit from what is ultimately such an empowering process”


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point, the effective integration of a paraplanning role into an advisory business can enable the firm to de-risk the business further – while also allowing the advisers themselves to spend more time with clients generating revenue. If financial planning software is used, of course, it’ll be clear to everyone that it can only work with the information provided. So “rubbish in” will lead to “rubbish out”. This awareness will motivate the client to provide all relevant and necessary information – leading, perhaps, to far more planning opportunities, including an agenda of actions for the next few years. No longer will clients isolate accounts from your advice because of nervousness or a lack of confidence. The other benefit of this approach, of course, is that it will lead to a higher number of referrals. The thing is, marketing has traditionally been a tricky area for many financial advisers and planners – because, while their technical knowledge is usually excellent, they often feel uncomfortable when it comes to marketing in particular, asking satisfied clients for referrals. But, because of the value that clients have gained from what has been (for most) a completely new

and refreshing experience, they themselves are likely to act as fantastic ambassadors for their adviser, and for the firm itself.

Summary Going down the Financial Planning route is also having a massive impact on professional connections where the focus has moved away from the product to the service and experience. All parties can easily buy into a process which aligns all interests, including of course those of the client, on the same side of the table. This is a business model that really works. It’s already been proved by Accredited Financial Planning firms - and what they’re already delivering ought to inspire others to follow at a time of such significant change. Establishing the script and processes, along with the technology, people and skills to support it, will lead to a dynamic business providing a valuable service - for which happy clients will be more than prepared to pay the required fees. For more comment and related articles visit...

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This advertisement is directed at investment professionals in the UK only and should not be distributed to retail investors. The value of investments, and the income from them, may fall or rise and investors may get back less than they invested. The material contained in this document is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information in this document does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this document when making any investment decisions. Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Services Authority. © 2012 Vanguard Asset Management, Limited. All rights reserved. VAM-2012-10-05-0177 VAN_2021 ETF Knowledge IFA Ads 122x155mm v1.indd 1 RDR Financial Planning - Part 2.indd 49

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magazine... for today ’s discerning financial and investment professional


EASTERN PROMISE New kid on the block Liontrust Asia Income High-dividend equity funds are still something of a novelty among Asia Pacific funds, which historically have tended to focus on capital growth instead. But there’s no doubting that dividends have become an established part of the market in the last few years. With savings lending rates currently at record lows, the flurry of new equity income mandates seeking to generate an attractive yield as part of a total return has come as no surprise at all. Liontrust Asia Income aims to provide a high level of income combined with strong long-term capital growth. Launched in March 2012, it’s still very small with just £10 million in assets under management. But it has had a very promising start with a gain of 5.1% in its first nine months. The fund targets companies that have a higher than average FUND FACTS prospective yield, backed by strong Name: Liontrust cash flows to finance Asia Income the distributions. Type: Unit Trust The managers use a top-down approach, Sector: Asia Pacific starting with what ex-Japan they see as the main Fund Size: £10m drivers for the region’s Launch: Mar 2012 equities. They then identify the areas Portfolio Yeild: N/A that are most likely to Ongoing Charges: benefit, and home in on 2% (capped) the individual stocks in those sectors to assess Manager: Liontrust their fundamentals. Fund Partners Regular visits to the Website: companies provide additional insight.

The fund comprises a concentrated portfolio of 50 holdings, with the top 10 accounting for 28.2% of the total exposure. Its main geographic weighting, unsurprisingly, is in China (29.3%), which reflects the more positive economic data now coming out of the country. But other key allocations are Australia (13.8%), Singapore (13%), Thailand (11.4%) and Hong Kong (10.4%). The main sector weighting is in Financials, which comprise a third of the fund - broadly the same as its allocation in the MSCI benchmark. This is obviously a key position, and it includes large holdings in Bank of China and Kung Thai Bank. The rest of the portfolio is more diversified, with 18.1% invested in Industrials and 10.5% in Technology; all the other sectors come in at less than 10%. Dividends are paid quarterly, although details of the yield are not currently available as the fund is still less than a year old.

The fund targets companies with a higher than average prospective yield and strong cash flows to finance the distributions 50

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Leader of the pack Newton Asian Income At the other end of the scale is Newton Asian Income, one of the largest and most established funds in the sector, which was launched in November 2005 and which has attracted just over ÂŁ3 billion in assets under management. During this time it has built up an impressive track record, with a 5 year return of almost 100%. As with other similar funds, the Newton fund aims to generate an attractive total return made up partly of income and partly of capital growth. Its manager, Jason Pidcock, believes that the Asia Pacific region provides a particularly good hunting ground for these types of stocks at the moment, because he says many of the companies have excellent growth prospects, strong balance sheets and are committed to paying dividends. Pidcock takes a long-term view of the market, and he uses macro themes such as population dynamics to identify potential investments. He says that China has been in a sweet spot for the last two decades, and that this has allowed it to achieve high growth - but that the increasing dependency ratio suggests that it is almost at an inflexion point. Consequently he has recently turned his attention to Australia, which he says has one of the best demographic profiles in the world, with a small population relative to its resources. Not surprisingly Australia has the largest geographic weighting in the Newton fund, with a 28% exposure. China is still next in line, although we should add that 21% of the allocation is via Hong Kong with just 8% invested in stocks listed on the mainland.

Financials still dominate the fund with an allocation of 28%, followed by Telecoms (18%) and Industrials (17%). There are fewer than 60 stocks in the portfolio, with the top 10 currently accounting for 33.5% of the fund. Pidcock concentrates on companies with sustainable dividends, as this also tends to make for consistent performance. All new holdings must have a prospective yield greater than the index, and if the payout on any of the existing shareholdings drops to more than a 15% discount to the benchmark it will be sold. This disciplined approach generates an exceptionally high yield of 4.43% with the dividends paid every quarter. All in all it’s a hard act to follow.

FUND FACTS Name: Newton Asian Income Type: UK OEIC Sector: Asia Pacific ex-Japan Market Cap: ÂŁ3.034bn Launch: Nov 2005 Portfolio Yeild: 4.43% Charges: Initial: 4%, Annual: 1.5% Manager: Newton Investment Management Website:

Not surprisingly Australia has the largest geographic weighting in the fund, with a 28% exposure

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magazine... for today ’s discerning financial and investment professional

Singapore Sling Aberdeen Asian Income Not many investors in the Asia-Pacific space can boast the experience and track record of Aberdeen’s Hugh Young. He and his team have built up an excellent reputation over the years, mainly on the back of their various open ended funds, but they also have a highly successful investment trust, Aberdeen Asian Income. Over the five years to the end of December the Aberdeen shares were up over 150%, while the fund’s MSCI benchmark managed only 26.4%. The aim of the fund is to provide a total return from the Asia ex Japan region, partly by investing in shares with above-average yield. It is less income-oriented than some of the other unit trusts and OEICs in the sector - this shift of emphasis is reflected in the lower yield of 3.1%. Dividends, however, are still distributed every quarter. The fund has a concentrated portfolio of 47 holdings, with the top ten accounting for just over a third of the fund. The largest country allocation is in Singapore (26.4%), followed by Australia (20.2%) and Thailand (14.2%). Because of its strong performance, the share price has typically traded at a large premium to NAV. This has prompted the company to issue £60m FUND FACTS of C class shares to try Name: Aberdeen to mop up the surplus Asian Income (AAIF) demand. The strategy Type: Investment seems to have worked, Company as the premium is now down to less than 5%. Sector: Asia Pacific Still, it’s still something ex Japan to keep an eye on. Fund Size: £335m The managers are cautiously optimistic Launch: Dec 2005 about the prospects Portfolio Yeild: 3.1% for Asia and expect the economic growth Ongoing Charges: to outpace that of the 1.4% developed world in Manager: Aberdeen 2013. They say that Asset Managers the region is becoming less dependent on Website: exports to the West, and that the sound public

finances offer the scope to provide fiscal stimulus if and when required. Despite this fundamental strength, any deterioration in the European debt crisis or the fiscal cliff in the States would cause problems. It is probably fair to say that it offers more of a balance between capital growth and income than some of the other funds – but, if that is what your clients are looking for, then perhaps this might be the perfect fit?

It is fair to say that it offers more of a balance between capital growth and income than some of the other funds 52

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Sophisticated Stuff Schroder Asian Income Maximiser Clients who are more interested in income than potential capital growth may be tempted by the Schroder Asian Income Maximiser fund. This uses the same strategy as its larger and better known UK equivalent, with the manager selling short dated call options on some of the securities in the underlying portfolio. Writing out-of-the-money covered calls effectively allows the manager to boost the immediate income by giving up some of the potential capital gain. When the fund was launched the potential upside for each stock was effectively capped at around 10% a quarter. This complex strategy means that the fund is only suitable for more sophisticated investor - but those who are comfortable with the concept can earn a far higher level of income. For instance, the underlying portfolio is currently yielding 4%, but the total payout rises to 6.75% by the time you’ve added in the option premiums. This is just below its annual target yield of 7%, but it still impresses. Dividends are distributed quarterly.

Schroder Asian Income Maximiser is a lot harder to run than a normal long-only equity portfolio, because if the manager gets it wrong then the potential losses on the options could really restrict the performance. But this has most certainly not been the case to date. From its launch in June 2010 to the end of January 2013, the fund was up 32.6% - comfortably beating the MSCI benchmark and the sector average return of 16.7%. At least 80% of the Schroder fund’s portfolio is invested in shares of Asian companies that offer high dividend income. Companies are selected on the basis of their long-term income and growth potential, and there are currently 67 holdings, with the top ten accounting for only 26% of the fund. The main country weighting is Australia (23.1%), followed by Hong Kong (18.1%) and Singapore (17.8%). Once again, the main sector is Financials (32.5%). This is the only fund of its kind in the sector, and it offers a very different kind of exposure than clients can get elsewhere. The covered call strategy might be hard for clients to understand, but it increases the distributions to the FUND FACTS sort of level that you Name: Schroder would normally only Asian Income get from high yield Maximiser bonds. If the managers can continue to deliver Type: Unit Trust 7% income and strong Sector: Asia Pacific capital growth, then it ex-Japan makes this fund rather difficult to ignore. Fund Size: £170.1m Launch: Jun 2010 Portfolio Yeild: 6.75% Charges: Initial: 3.25%, Annual: 1.5% Manager: Schroder Units Trusts Website:

At least 80% of the fund’s portfolio is invested in shares of Asian companies that offer high dividend income

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magazine... for today ’s discerning financial and investment professional

Lee Werrell, Managing Director of CEI Compliance Ltd, gives his personal round-up of the key issues that are currently shaping the compliance agenda. What’s happening to the FSA Handbook? At legal cutover on 1st April 2013, the FSA Handbook will be split between the FCA and the PRA to form two new Handbooks. Most provisions in the FSA Handbook will be incorporated into the PRA’s Handbook, the FCA’s Handbook, or both, in line with each new regulator’s set of responsibilities and objectives. Users of the Handbook will be able to access the following online: n

The PRA Handbook, displaying provisions which apply to PRA-regulated firms;


The FCA Handbook, displaying all provisions which apply to FCA-regulated firms; and


To support the transition, a combined view

which will show the provisions of both Handbooks, with clear labels indicating which regulator applies a provision to firms. The new Handbooks will reflect the new regulatory regime, and in some areas more substantive changes will be made to reflect the existence of the two regulators, their roles and powers. Firms will have a new regulator or regulators, and will consequently need to assess how the new Handbooks of these bodies will apply to them. Dual regulated firms will need to look to both the PRA and the FCA Handbooks, and FCAonly regulated firms to the FCA Handbook. Further details at:

RDR Questions and Answers: Part 1 How is the FSA going to supervise RDR? How firms comply with the RDR will be supervised in several ways. The FSA will ask how your firm has implemented RDR as part of their firm visits and they will focus on the RDR status of firms during the regulatory reviews over the next three years. The FSA are also planning to undertake thematic reviews looking at aspects of the RDR over the next 18 months. We have been told to expect a review in 2013. So how much will be RDR focused? The review is focused on governance, culture and controls – the RDR is relevant to all of these areas. At your review the FSA may ask some specific questions on the RDR and your approach to how you have implemented it. They may also ask questions designed to determine your firm’s ability to identify and mitigate risks.


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Risk management is climbing the ladder of importance and will be even more prevalent in the post RDR world. If IFAs do not have an effective system for identifying risks and issues within their firm, they could be inviting unwelcome regulatory scrutiny. Part of the planned activity is targeted at rogue direct sales and non-advised product promotions in order to prevent consumers from getting a raw deal in the Retail Distribution Review world. According to an FSA spokesman, the FSA is also going to scrutinise how advisers have set up their charging models. It will not focus on how much advisers are charging, but on whether the adviser can demonstrate how they came to their charge. The spokesman said: “Are they including everything? Have they set the charge too low? Have they forgotten to include the rent of their building, for example?”

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The FSA are aware of and can see circumstances where it would be feasible to charge somebody with less to invest, a proportionately higher fee than someone with a higher amount. However, any material difference in charges from those set out in the charging structure will need to be drawn to the client’s attention and agreed with them. You are also free to offer or negotiate a different price to that in the charging structure for a particular client, for example, a lower price for an existing client. What do I need to provide to prove independence? All retail firms need to show evidence that that they are able to advise on all Retail Investment Products (RIPs) that are capable of meeting the investment needs and objectives of their retail clients. As they need to be assessed on an individual client basis, many firms will be understandably unable to say upfront what products may be capable of meeting the investment needs and objectives of their clients. So the FSA will expect firms providing independent advice to be able to provide advice on all types of RIPs. Advisory firms typically use research to distil the product market. If a firm does this, it should be able to show evidence of its selection criteria to select products and the product research it has undertaken, and how these are consistent with the independence requirements and the client’s best interests rule. If a firm excludes a certain type of RIP from its ‘panel’ because, after review, it decides that there is a valid reason consistent with the client’s best interests rule for doing so, it should be able to show evidence of this decision. A firm that says it provides independent advice also needs to be able to advise off-panel if that would be in the best interests of a particular client. As stated in the FSA guidance “Independent and Restricted Advice” (FG12/15), to do this all advisers should maintain an awareness of what is and is not included in their panel/s. This is so it can identify clients for whom an off-panel solution would be suitable. The firm will also need to show evidence of how it regularly reviews the decision to include or exclude certain product types from its panel and the specific due diligence it has performed to make that decision. A firm that holds itself out as independent should genuinely be able to consider all Retail


The actual cost of advice is a business decision for your firm, providing that it meets the rules the FSA have laid down in our rules on how to determine its charging structure, and that it considers your duties under the client’s best interests rule. As long as you comply with those rules, it is unlikely that the FSA would comment on the amount charged or the method used. But they will pay close attention to the disclosure of the cost of advice and the disclosure of what the client should expect to receive for this cost, especially in the area of ongoing advice.

Investment Products (RIPs) of the relevant market. Retail Investment Products are: n

A life policy; or


A unit; or


A stakeholder pension scheme (including a group stakeholder pension scheme)111; or


A personal pension scheme (including a group personal pension scheme)111; or


An interest in an investment trust savings scheme; or


A security in an investment trust; or


Any other designated investment which offers exposure to underlying financial assets, in a packaged form which modifies that exposure when compared with a direct holding in the financial asset; or


A structured capital-at-risk product.

The FSA have stated that they would also expect the firm’s disclosure documentation to be clear about the service the firm provides. Why do I need to recommend UCIS? The FSA deem UCIS to be potentially suitable for retail customers who can be classified as sophisticated or high net worth. A firm’s independent status will not be affected if it does not consider UCIS in its review of product types when giving advice to those retail customers who are not sophisticated or high net worth, i.e. ‘ordinary retail investors’. So if your firm has reviewed its client base and decided that UCIS are not suitable for your clients, you could still call yourself independent and not offer advice on these products. The firm would need to be able to show evidence of this and would also need to keep this under regular review. Firms that deal with sophisticated/ high net worth clients who may receive promotions of these investments, on the other hand, may need to include the products in the review of the market for those clients, for instance if the clients have the requisite appetite for risk. The firm will also need to consider how it will deal with new clients who already hold UCIS products in their portfolio. Do I have to advise on UT and ETFs to remain independent? ETFs and unit trusts are retail investment products, so the FSA would expect a firm holding itself out as independent to be able and willing to advise on these products if they meet the investment needs and objectives of any of its retail clients. Part 2 will be published in the March edition of IFA Magazine. Remember: If you have any concerns regarding these issues, please contact your compliance department or an independent consultant.

See also the listings of FSA publications on Page 56 of this issue

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magazine... for today ’s discerning financial and investment professional

FSA Publications OUR MONTHLY SUMMARY OF THE LATEST OFFICIAL PUBLICATIONS BY THE FSA These listings exclude the FSA’s routine monthly handbook updates.

Payment Protection Products Finalised Guidance Ref: FG 13/02 24th January 2013 37 pages

A paper from the Bank of England and the Financial Services Authority, consulting on the Prudential Regulation Authority’s (PRA’s) approach to enforcement.

Most provisions already in the FSA Handbook will be adopted (or ‘designated’) by the FCA and PRA into their respective Handbooks, according to each regulator’s scope and powers.

The guidance sets out the importance of: • Identifying the target market for the protection; • Ensuring that the cover offered meets the needs of that target market; and

Secondary legislative measures under the new Financial Services Act 2012 will set out how the current UK regulatory regime will be transitioned to the new regime. This consultation aims to make the transition of rules, guidance and associated processes as smooth as possible.

• Avoiding the creation of barriers to comparing, exiting or switching cover. It also discusses how firms can manage these risks through their distribution and marketing strategies and through their governance arrangements.

Consultation period ends 25th February

Regulatory Fees and Levies: The Money Advice Service Cost Allocation Method for 2013/14

Regulatory Reform: Handbook Transitional Arrangements, the Appointment of With-Profits Committee Members and Certain Other Handbook Amendments Consultation Paper Ref: CP 13/03 25th January 2013 50 pages


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The Paper consults on the detailed Handbook provisions which will be needed to support this legislation creating the revised Handbooks of rules and guidance for the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), which will replace the FSA on 1 April 2013 (“Legal Cut-In”).

Consultation Paper Ref: CP13/02 22nd January 2013 15 pages

The FSA is consulting on a new proposed method of allocating Money Advice Service (MAS) money advice costs to fee-blocks, with a view to implementing it for 2013/14.

Removing the Simplified ILAS BIPRU Firm Automatic Scalar and Other Changes

This is a year earlier than originally planned. But the Fsa is clear that it is not proposing any changes to the way the MAS allocate debt advice costs. The proposed method affords a clearer usagebased picture of how consumers use the service the MAS provides, and of which firms pay for it. The link that emerges will improve on the current allocation method that has no such relationship.

Policy Statement Ref: PS 13/01 18th January 2013 20 pages

Of interest to all BIPRU firms.

Consultation period ends 22nd February

FSCS Funding Model Review - Feedback on CP12/16 and Further Consultation Consultation Paper Ref: CP13/01 18th January 2013 114 pages

This paper summarises the feedback to CP12/16, FSCS Funding Model Review (July 2012), concerning the creation of an adequately funded and supported compensation scheme which, the FSA says, is important for financial stability and consumer confidence. The paper also confirms the final rules, except in one area - relating to the funding of costs that exceed FCA FSCS funding class thresholds, via the FCA retail pool. On this one issue, the FSA decided to undertake a further one-month consultation, which closed on 18 February 2013.

Sets out the responses received by the FSA to Consultation Paper 12/31 (Removing the Simplified ILAS BIPRU Firm Automatic Scalar and Other Minor Changes to BIPRU 12), which was published in November 2012. It also sets out the rule changes and amendments that are being made as a result. In CP 12/31 the FSA consulted on three different areas of liquidity policy: the simplified ILAS BIPRU firm automatic scalar, the BIPRU 12.7 liquid assets buffer eligibility restrictions and the SUP 16 annex 25 reporting guidance. The new rules came into force from 21 January 2013

Risks to Customers From Financial Incentives Finalised Guidance Ref: FG 13/01 16th January 2013 34 pages

The FSA’s September 2012 consultation on guidance about the risks to customers from financial incentives produced a number of responses which are now summarised, together with finalised guidance.

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Mutuality and With-Profits Funds: A Way Forward

This Paper, therefore, sets out the FSA’s guidance to help firms meet the FSA’s requirements when developing incentive schemes, and to mitigate the risk of mis-selling created by such schemes.

Discusses the concerns of the mutual with-profits sector, which is faced with a decline in new with-profits business with the potential to lead to the closure of these firms as their with-profits funds run off.

Consultation Paper Ref: CP 12/38 19th December 2012 44 pages

Consultation Paper Ref: CP 12/40 21st December 2012 80 pages

Consultation period ends 21st March

Consultation period ends 1st February

The PRA’s Approach to Enforcement: Consultation on Proposed Statutory Statements of Policy and Procedure

A paper from the Bank of England and the Financial Services Authority, consulting on the Prudential Regulation Authority’s (PRA’s) approach to enforcement.. Consultation period ends 28th February

Consumer Redress Scheme in Respect of Unsuitable Advice to Invest in Arch Cru Funds Policy Statement Ref: PS 12/24 17th December 2012 145 pages

FEBRUARY 2013 25-26 Global Tax Summit 2013 Monte Carlo, Monaco 28

Consultation period ends for CP 12/39 (The PRA’s Approach to Enforcement: Consultation on Proposed Statutory Statements of Policy and Procedure)


Final entry into force of Policy Statement 12/20 (Client Assets Firm Classification, Oversight, Reporting and the Mandate Rules)

Proposed changes to the regulatory requirements needed to create the new rulebooks and policies for the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). These changes are intended to be in place for when the new regulators acquire their legal powers in 2013.

Implementation of the rules transposing FICOD1, and changes to the Handbook rules, must be in place by 10th June 2013.

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The Financial Services Bill: Implementing Markets Powers, Decision-Making Procedures and Penalties Policies Consultation Paper Ref: CP 12/37 18th December 2012 188 pages

A joint consultation with HM Treasury, setting out how the UK intends to transpose amendments made to the Financial Conglomerates Directive following a European Commission led technical review of the directive.

Consultation Paper Ref: CP 12/39 20th December 2012 76 pages

Consultation period ends 19th March

Financial Conglomerates Directive Technical Review Amendments


Dates for your diary

The FSA says its research had shown that most firms had incentive schemes that could encourage staff to mis-sell, and that most firms did not have effective controls in place to manage these risks.

MARCH 2013 6

7-10 Berlin International Economics Conference 14

European Council Meeting Brussels, Belgium

17-20 European Winter Finance Summit (EWFS) 2013 Obertauern, Austria 19

Consultation period ends for Consultation Paper 12/38 (Mutuality and With-Profits Funds: A Way Forward)


UK Spring Budget


Consultation period ends for Consultation Paper 12/40 (Financial Conglomerates Directive - Technical Review Amendments)


5th BRICS Summit Durban, South Africa

Sets out a consumer redress scheme for Arch Cru investors. The process will start on 1 April 2013, and firms will have until 29 April 2013 to identify all consumers for whom they advised, arranged or managed investments in annual ‘Media IFA of the Year’ awards

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57 20/02/2013 11:24



APRIL 2013 1


Legal Cutover. Formal empowerment of the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), and the transfer of most existing FSA Handbook provisions to the new bodies Tax year 2013/2014 begins

18-19 G20 Finance Ministers and Central Bank Governors’ Meeting Washington DC, USA 22-24 European Pensions & Investments Summit 2013 Montreux, Switzerland 29

Final FSA deadline for advisers contacting investors regarding redress for the Arch Cru funds

MAY 2013 13

European institutions to submit first data on new European Capital requirements regulation

13-14 Global Tax Summit 2013 Montreux, Switzerland 15-16 European Business Summit Brussels, Belgium 22

European Council Meeting Brussels, Belgium

JUNE 2013 3-4


Emerging Markets Investment Summit Warsaw, Poland G20 Finance Ministers and Central Bank Governors Deputies Meeting St Petersburg, Russia

17-18 G8 Summit Enniskillen, Northern Ireland HAVE WE FORGOTTEN ANYTHING? Let us know about any forthcoming events you think ought to be in our listings. Email us at and we’ll do the rest.


Februar y 2013

FSA Publications + IFA Cal.indd 58

an Arch Cru fund, and to identify all eligible cases. Firms must write to all consumers within and outside the scope of the scheme by 29 April 2013.

and report of the Asset Pool Monitor, following requests after the 2011 publication of the amended Regulated Covered Bond (RCB) Regulations and Sourcebook The FSA says that it believes this guidance will bring more consistency to existing audit reports, which it says currently vary greatly across RCB issuers. And that it will allow cross comparisons across RCB programmes.

Client Assets Regime: Changes Following EMIR Policy Statement Ref: PS 12/23 2nd November 2012 44 pages

The Regulation and Supervision of Benchmarks

Rules on client assets have had to be changed to accommodate the European Market Infrastructure Regulation (EMIR). This statement relates (only) to Part I of Consultation Paper 12/22 (CP12/22), and contains feedback and final rules making changes required under the European Market Infrastructure Regulation (EMIR).

Consultation Paper Ref: CP 12/36 5th December 2012 78 pages

Proposed approach to enacting recent government policy for the regulation of benchmark submission and administration in the future. (Beginning with Libor.) Consultation period ends 13th February 2013

Feedback on Parts II and III of CP12/22 will appear at a later date

The FCA’s Use of Temporary Product Intervention Rules

Packaged Bank Accounts Policy Statement Ref: PS 12/22 14th December 2012 26 pages

Consultation Paper Ref: CP 12/35 3rd December 2012 36 pages

Consultation on when and how the Financial Conduct Authority (FCA) may make temporary product intervention rules.

Clarifies and tightens the rules relating to the sale of packaged accounts to consumers, with particular regard to bundled insurance policies that may not be suitable for clients and may therefore have been mis-sold.

Consultation period ends 4th February 2013

Regulatory Reform FCA Handbook

Thematic Overview on the Regulated Covered Bond Regime: The Role of Asset Pool Monitor Finalised Guidance Ref: FG 12/23 13th December 2012 13 pages

This guidance sets out the FSA’s further guidance on the scope of the inspection

Consultation Paper Ref: CP 12/34 29th November 2012 112 pages

Updates to the FCA Handbook relating to supervision and threshold conditions, as well as a statement on the FCA’s new power of direction over qualifying parent undertakings. Consultation period ends 29th January 2013

20/02/2013 11:24


MARCH TO THE NORTH EAST THE IFA CENTRE’S GILLIAN CARDY SAYS INNOVATION CAN SOMETIMES BACKFIRE A chance encounter in the gym (via a Radio 4 podcast) with Clayton M Christensen, Harvard Professor of Business Administration and author of The Innovator’s Dilemma has dramatically changed my opinion on the outlook for the future of financial advice. The core thesis is this: that good companies begin their descent into failure by aggressively investing in the products and services that their most profitable customers want. The dilemma is that it is precisely because good firms listen to their best customers, and provide their customers with more and better products of the sort they want, that they lose positions of leadership. It seems that doing the right thing is the wrong thing to do. Challenging Traditional Thinking Christensen’s book challenges a great deal of business and management strategic thinking. The author himself acknowledges that even Harvard teaches future leaders to adopt the strategies which will eventually sow the seeds of their own failure in the face of disruptive technologies. To explain this, technology here means the processes by which firms transform labour, capital, materials, and information into products and services of greater value - not simply IT or manufacturing. Sustaining technologies improve the performance of established products, along the performance dimensions that mainstream customers in major markets historically value. Conversely, disruptive technologies are typically innovations that generally underperform established products in mainstream markets, at least in the near-term. However, they bring to market a very different value proposition, and they may offer other features that a few fringe (and generally new) customers will value - with products that are typically cheaper, simpler, smaller, and, frequently, more convenient to use. So What Goes Wrong? Firms do listen to their customers - but if the current customers like things just the way they

IFA Centre.indd 59

are and see no value in the innovation, what is the point of investing in change? Companies allocate capital to projects that demonstrate appropriate returns on investments. Whereas innovative markets are small and rarely demonstrate the potential to justify capital investment. Firms continually add additional features to products and services - often beyond those which their customers understand or value. All of which only adds cost and corporate structure. Which then makes innovation even harder. And the heart of the problem is that, because good firms behave this way, they themselves create the vacuum into which new and disruptive providers are drawn. New customers, previously unsatisfied by existing offerings, are drawn to buy innovative products and services at attractive prices. Christensen refers to the “march to the north east” - the continual drive of firms to increase price and quality. The challenge to firms to consider downward vision and downward mobility. So, are financial advice firms also guilty of this “march to the north east” - the quest to provide more services at a higher price to existing customers? Is this what is really creating the advice gap? And is this activity, highly rational in management terms, actually creating the vacuum into which new advice propositions will be welcomed - lighter -touch services at considerably lower cost, but which attract new investors, thus closing the advice gap in the process? For more comment and related articles visit... Februar y 2013

59 20/02/2013 11:47

BLIND magazine... for today ’s discerning financial and investment professional

SELECTING A PARTNER IS LESS DAUNTING IF YOU’VE GOT THE RIGHT HELP, SAYS RECRUIT UK’S JOHN ANDERSON I attended a recent corporate event where I heard independent and corporate speakers giving their views on IFA and restricted advice. From a recruiter’s perspective, it was good to hear how companies have set out their stall to take account of RDR in their business planning and invaluable as a networking event. But a thought came to mind half way through one presentation; what are the advantages of remaining and IFA or becoming restricted? It might be time to take a fresh look at your business and the market. The first question to ask is this: Are you a business owner who enjoys giving regulated advice? Or are you someone who enjoys giving financial advice first, and a business owner second? Not wishing to fudge the answer, the truth is somewhere in between - but I would put an emphasis on the former rather than the latter.

Business Plan Without a business plan and a coherent understanding of a start and finish point, a


Februar y 2013

Recruitment.indd 60

business can race its way to the bottom pretty quickly. But with a good business plan, and achievable objectives, then at least you can measure the direction and make adjustments along the way. But if I asked you if you had a coherent business plan, how would you answer? And if you have made a business plan, would you have asked: “Do I remain an IFA, or do I become restricted? What are my options?” There are IFA companies who have become restricted, and others who wish to remain as an IFA. Each has its own take on what it can deliver, of course, and also on what is best. So, after you have reviewed your business, it is worth taking the time to look at the market.

First Steps There are a number of companies and networks who will want to speak to you [about affiliation?] and sell their benefits to you. A number of these have internal recruiters of their own, but also engage companies like ours to keep a strong flow of candidates. Some rely solely

20/02/2013 11:48

on specialist recruiters. Each approach has its merits, and it all depends upon how much they wish to pay to attract new IFAs to the business. One advantage that a recruitment consultancy has, though, is in giving you an appraisal of the whole of the market. This valuable perspective can help to save you time and legwork when appraising suitors. Once you have decided on the companies of interest to you, go and see them. The recruiter will of course arrange the meetings for you, and they will give you a further indication of business culture and business plans. One thing to keep in mind here is the importance of keeping that mind fully open. Even if you have heard disparaging remarks about an organisation, it is still worth going to meet with them, even if only to rule them out. On the other hand, of course, they may turn out to have something within their proposition that could be of real value to your clients.

Moving Forward After making your decision, go into as much detail as possible regarding

Recruitment.indd 61


DATE the proposition. Review the split, and what you get for your money. Is administration and paraplanning included? Who pays for PI costs, how often are you paid? Is there lead generation? Look at all the issues which will impact upon your time and business. Review all the costs and put them into your business plan. Then you can decide where you can position your marketing and sales effort. If you have gone through a recruiter, then let them know your decision of course. They will tie up any loose ends and will arrange for contracts to go out. And they’ll be a point of contact should you need them. By this stage, of course, you will have been speaking with your new employer or network. It sounds a simple enough process, and it is. If you get it right, you could further your business significantly.

For more comment and related articles visit...

Februar y 2013

61 20/02/2013 11:48

Financial Services Recruitment Specialists

Employed Chartered IFA London

Self Employed IFA Nationwide Vacancies

Basic c£60k (c£120k OTE) We are currently working alongside a large and established IFA firm who have the insight, focus and talent to exploit the opportunities that lie ahead.

Due to a continued influx in business, my client is seeking a Chartered and entrepreneurial IFA to join their existing team in London. You will be specialising in managing the portfolios of some of the company’s most affluent clients so it is essential that you have proven experience in relationship management within an IFA role and a broad knowledge of financial services within a UHNW arena.

They are seeking diploma qualified financial professionals who have a proven track record of success within an IFA or bancassurance background (writing a minimum of £40k).

In return for expertise and results, my client is offering an excellent basic salary up to £60k as well as a competitive bonus structure leading towards an OTE c£120k. This is an excellent chance to join a highly professional outfit that combines both structured and adhoc learning opportunities with an excellent support network to ensure that you can develop your skills in serving your client and expanding your business.

Guildford and Nationwide Vacancies Basic up to 125k + Rewards package

My client is a prestigious award winning Wealth Management group who has a strong presence across the UK and Channel Islands.

Should you have transferable clients this will be welcomed, however this is not essential as you will have a close working relationship with the investment managers and will be working from their leads to offer a full spectrum of financial planning services.

Employed Wealth Manager

Although some leads may be available, it is essential that the applicant has a strong business plan in place and a proven ability to self generate and maintain a profitable client base through networking with introducers and existing clients. This role is self employed with the option to work from home or within one of the many modern and professional local offices that accommodates all the latest and necessary equipment and interview rooms. n ‘Back Office’ run by a dedicated and

enthusiastic central team, meaning that clients enjoy a more responsive service and receive more focused advice. n Generous split (average 60/40)

with 100% for the first 6 months n Excellent administration support and

same day commission payments n Compliance support n Access to a business consultant

to ensure smooth business transition on joining n A wide range of marketing

My client is a leading wealth management company that provide advice to high net worth clients across the UK. They are well known for their exceptional training and support ensuring each of their advisers attains Chartered qualifications whilst meeting and exceeding business objectives. My client doesn’t believe in targets, they have exceptional relationships with leading accountants and lawyers who introduce HNW and UHNW clients that need life planning advice ensuring a steady stream of opportunities. My client supports the adviser with full Para planning support, administration, in house investment managers and policy servicing team. My client is looking for exceptional Financial Planners who are either Chartered or working towards Chartered. Proven experience of providing pension and investment advice to high net worth clients and a solid track record of success. Ideally you will be educated to degree level, a strong communicator and networker with a background in financial advice. My client is happy to talk to advisers from a Bancassurance background and IFA. If you can bring clients with you this is advantageous but in the first instance it’s going to be based on the individual’s attitude and drive. In return my client will offer a leading rewards package that includes a basic salary of minimum £60k, bonus, long term career development and potential shares.

material available n Industry leading training with

numerous large-scale business conferences and local workshops across the UK and Northern Ireland n Regulatory protection and a

readymade exit strategy. Our client has a competitive edge that won’t be found anywhere else which sets them apart from other providers.

Thinkers.indd 62

20/02/2013 13:13

Contact us to discuss our latest opportunities:

T 0844 371 4031

Employed and Self Employed IFA Nationwide vacancies

National IFA


Senior Chartered IFA

Office or Home Based

London/Home counties based

Basic Salary or Self-employed (70/30 split)

Strong business plan essential

My Client, a Discretionary Wealth Manager and Independent Financial Advisory firm, with a strong presence in the Midlands are looking to expand their professional team of Independent Financial Advisers.

My client, a national IFA and Stockbroker are actively recruiting qualified financial advisers across the UK. In return they offer a competitive 70/30 split self-employed or a basic salary.

My client is one of the oldest and established private financial services practices in the UK.

Having recently floated on the PLUS market and being one of the top 100 IFAs in the country, my client is committed to retaining its independent status during RDR and continuing to grow its business through IFA acquisitions and the development of good quality professional connections.

My client seeks IFA’s who value their client time and want to increase recurring income whilst getting out and winning new business.

With 100 IFAs and over 80 back office staff, they offer unrivalled administrative, technical and investment support and provide the opportunity to grow with a new breed IFA practice. Whether you’re looking for a self-employed or salaried role, I would be interested in talking to you. With a strong track record for adviser retention of almost 100%, my client are looking to attract good quality financial advisers seeking a long term career, who are committed to offering first class financial planning to corporate and private clients. It is essential that you have your own client bank or a very strong business plan in place with the ability to self generate. Some of the many benefits offered to advisers are: n RDR practice with a clearly

defined service proposition n Designated administrative support leaving

you more time to spend with your clients n Technical reports and research

provided by our team of highly qualified Technical Assistants n A quality In-house Investment

Team, offering Discretionary and Advisory Portfolio Management All advisers have access to a lead generation program which provides incremental activity to self-generated clients.

Thinkers.indd 63

My client offers an excellent support package to help you build a successful business including Full Para planner support with very minimal self administration, ensuring you are out in front of clients 100% of your time, an investment committee and full time researchers in place to ensure they remain whole of market, an In house DFM and bespoke portfolios and a cutting edge Internet based CRM software. My client covers all cost associated with being an IFA and they will provide full support in transferring existing clients across and increasing the recurring income to 1%. Some leads are provided through progressive partnerships and they have a clear business plan and support to maximise business with existing clients through seminars and referrals. My client also offers a leading exit strategy for IFA’s who decide to leave the industry. Ideally you will be an existing IFA with your own clients. Perhaps you are directly authorised and have concerns about the impact of RDR on your business and how you are going to manage research, servicing existing clients and winning new business. Maybe you are currently connected to a network that is not providing the support that’s promised or its costing you more than you thought?

Based in Oxfordshire, they are seeking a high calibre Senior Chartered IFA to join their firm as part of their succession planning and overall business strategy. This is a superb opportunity that could lead to the appointment of Director. To be considered for this position, you must be chartered or very near chartered status with experience and conversance with all aspects of a first class, client orientated service. My client anticipate commission/fee turnover of £150,000+ per annum from the successful individual. In addition to managing and increasing your own substantial client bank (circa £100k per annum) you will be cultivating relationships with high net worth clients, including highly profiled individuals and organisations. You will be articulate and experienced at working at a senior management/ Director level as you will be managing and developing key business partnerships along with the chairman once the probationary period is completed. The successful individual will work from the firm’s offices close to Banbury and from home and they will have access to a City of London base to meet clients, so the necessary flexibility and mobility to really develop in this role are available. In return, my client offers an excellent package which will be calculated through the level of business generated, a rewarding and committed working environment and the support of an administrative PA team and excellent office facilities.

Don’t bury your head in the sand; contact me today for a confidential discussion about how my client can add value to your existing successful business.

20/02/2013 13:13

magazine... for today ’s discerning financial and investment professional


Senior Sales / Ad Manager To manage/sell print and digital advertising, event sponsorship and bespoke projects. Selling to finance businesses, asset managers, agencies and related companies. London based, you will be expected to develop existing contacts and represent the magazine. A great opportunity for an established sales person to step up and benefit from business growth.

News Journalist

As IFA Magazine celebrates it’s second anniversary, following intense interest and prolific growth, we have a need to expand our team.

To work alongside the Editor in producing and co-ordinating financial features and news for both the web and print magazine.

F/X Consultant / Director As we develop our successful brand we have an opportunity for an experienced foreign exchange consultant to join our senior team. A working knowledge and contacts within the f/x market essential, this role could be highly lucrative and a perfect step up for someone ready to take on a senior role.

To register your interest, please send cv in full confidentiality to


the financial services e-learning specialists

Get your skills up to date the easy way

Wanted: Quality financial advisers ....Only those with Level 4 Qualifications need apply More and more large groups are demanding that candidates have already achieved at least Level 4 qualification. In fact, many haven’t even picked up a book yet. Without large numbers of qualified advisers the FS sector has a difficult future to say the least. The BWD Group, an established search & selection firm, have taken action to help with the launch of a new service - BWD development. • Advisers and others taking the Level 4 exams can now access e-learning programmes and on-line mock exams. • This allows candidates to learn at their own pace - at a time and place to suit them • They can take on-line assessments along the way and take up to five mock exams to make sure they are on track to pass the live examination

If you like the sound of this, go to where you can see a full demonstration of the service or call BWD development on 0845 850 9995 T 0845 850 9995 F 0113 274 3031 E


Februar y 2013

Thinkers.indd 64

20/02/2013 13:13


LIBERTY’S HERO “History is largely a history of inflation - usually inflation engineered by governments for the gain of governments” Friedrich August von Hayek Born May 1899 in Vienna. Died March 1992 in Freiburg, Germany Few economists of the last century have moved quite so easily between economics, politics and sociology as Hayek. Born into an aristocratic Austrian family as Friedrich von Hayek, he dropped the increasingly unpopular hereditary tag in favour of just plain Mr as the First World War ended. In which, by the way, he was decorated for bravery. Free Thinker An early flirtation with social democracy soon led to a more focused study of the capitalist price system – the working man’s most reliable tool for assessing his own economic decisions, he said. And from then on he was what we would have called a free thinker.

on permanently pleasing its electorate. He styled himself as a “new whig” – a view that was closer to today’s libertarians in America than anything else. Inflation, the Great Divide But in fact they were on good terms, regarding each other as favourite sparring partners rather than arch-enemies. Keynes, of course, believed that governments could revive flagging economies by increasing the money supply so as to free up spending and improve employment. But Hayek insisted that the only consequence of printing money was to drive down lending rates to the point where businesses made fatal investment errors – such as borrowing long-term to fund short-term projects.

But history was closing in fast on such people. Hayek sensibly left Austria in 1931 to take up a post at the London School of Economics, and in 1938, after the German annexation, he acquired full British citizenship which he retained all his life - even though he subsequently moved on to the USA (1950-62) and later to Germany and Austria.

In his ground-breaking The Road to Serfdom (1943), Hayek explained that it was hopeless for government planners to try and direct prices, because, he said, they were almost what we’d call organic. “The result of human action, but not of human design.”

The Reluctant Rightist

Hayek’s Nobel Prize for Economics (1974) came as a bit of a surprise, not least because he shared it with Sweden’s Gunnar Myrdal for their joint contributions to the subject. Myrdal was a socialist with whom he hardly agreed at all.

It’s doubtful whether Hayek derived much satisfaction from Margaret Thatcher’s historic espousal of his cause in 1975 as the economic flag of the Conservative Party. Or, indeed, the honours heaped upon him by Presidents Ronald Reagan and George Bush Snr, who awarded him the Presidential Medal of Honor in 1991. But nor did Hayek think much of the left wing. Or of the established liberals, who he said were guilty of imposing their well-meaning social ideas on a society that was perfectly capable of evolving its own beneficial goals under the market economy. Yes, Hayek agreed, capitalism might produce only a limited democracy, but it was still better than unlimited ‘liberal’ democracy, which would leave even the most right-thinking government dependent

Thinkers.indd 65

The Big Surprise

This did not mean, however, that he couldn’t come up with surprising stuff. In 1976 he proposed that currencies should ‘denationalise’ in a scenario where private-sector money issuers competed to produce the cleanest and most stable currencies for the world to choose from. Hmmm, that one didn’t go anywhere. But the emergence of minimum-government libertarian sentiment in the United States is surely the best testament to the ideas of a man whose ideas collided so colourfully with each other. For better or worse, few economists of the last century have inspired more original thought. Februar y 2013

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T H E OT H E R S I D E. . .

magazine... for today ’s discerning financial and investment professional


Romance was off the menu for Valentine’s Day this year. I blame Ian Duncan Smith. In a keynote government statement, IDS announced that a flat state pension will be introduced in 2017 – the actual figure depends on inflation, but is likely to be £155 a week – and that it will end all those complicated add-ons like SERPS, the married couple’s allowance and pension credits. I ventured the opinion to Mrs H that this seemed altogether simpler, and entirely sensible. Thereby triggering the sort of volcanic wifely response that had me heading for the sanctuary of the garden shed - and probably the spare bedroom too. As a woman who started with a Saturday job in a Southend grocer’s aged 15, and who has worked non-stop ever since, the Good Lady Wife was already less than delighted to have discovered that she is going to have to work till 67 before she can claim her state pension. But now, following this new announcement, she realises that instead of looking forward to a pension based on more than half-acentury of National Insurance contributions and SERPS top-ups, she’s going to get the same as everyone else at retirement. I can’t be sure of her exact words, as I was beating a rapid retreat at the time. But I think they included terms like “pittance”, “grotesquely unfair” and something to do with “subsidising feckless benefits layabouts”. She really must stop reading the Daily Mail. While the government are dressing up the reform as family-friendly, because it means stayat-home mums can look forward to a full pension,


Februar y 2013

The Other Side.indd 66

KILLER we know that it’s actually part of the drive to cut public expenditure - along with the cap on benefits and making public sector workers pay more for their fat final-salary schemes. Still, it’s an ill wind, and for IFAs the simplification of the State pension must be good news, because it will focus people’s minds on the prospect of living on a little over £8,000 a year. Out with the Heston delicacies from Waitrose, and in with the blue-striped Value tins and the Shergar burgers from Tesco. Meanwhile, in a bid to restore domestic harmony, I was obliged to upgrade my plans for Valentine’s Day to a luxury weekend in Paris instead of the usual lunch down at the pub and a bunch of garage flowers. Thanks, IDS. My bill is in the post.

Money Where Your Mouth Is For many investors, RDR has resulted in anxiety and confusion. Many ask what advice IFAs are now allowed to offer, how much it is going to cost, and should they start managing their own savings? The latter option must be considered seriously risky for most – akin, if you like, to swimming with dolphins and discovering that you’re surrounded by sharks. However, if the FSA’s estimate is correct - that two thirds of individuals will not be seeking advice in 2013 – then it’s obviously on a lot of people’s agendas. IFAs will therefore have to be creative and persuasive to lock in their existing clients, and to attract new ones. So here’s a thought. In an era when the rest of commerce and industry is increasingly paid by results, might there be a case for advisers (admittedly the bolder ones) to charge a percentage of fees geared to fund performance?

20/02/2013 13:39



Very good in its make up and content. Sets itself tfoaside from other publications in the marketplace. l i o oo mph Excellent. Thank you. Really refreshing. High quality production with some good thought provoking articles useful information. Good useful content. Up-toMonand thly inco m , eaudate tifully ba einfo useable, very good and easily read. Very lanced good articles, relevant to my work. Very interesting, extremely useful. Very impressive read and lots of S N nice to see it in “magazine” style format useful articles Monthly incIoG me, S beautifullythan rather balanced usual newspaper. A comprehensive read. Very good layout and informative. Good content, appealing to the female reader as many TAXSvery publications are ISE driven and focused. IUNRmale Thank you. A quality magazine for IFA’s. Good paper with good content which is plain talking. Good layout and easy to read. Not seen anything like this for IFA market. Really good. Worth reading. Interesting content. Very professional and upmarket, exactly what is needed in the ifa community. Absolutely fantastic. Not cluttered by endless comparison tables. Punchy contemporary style.. More of the RED please. A very readable same in the months to come publication. It looks likeC an interesting and enjoyable D AR read that I would be happy to have delivered to the office - not something I could Tsay about HE PAIN IN magazine manyThe financial publications! Great - look forward to subsequent editions. Brilliant! Very impressive the top IFAs and all interesting publication. Looked and felt like SIS a proper magazine rather than E Vother N T A N A LY E cheaper M M O C are talking about... W IE EWSR looking publications. Breath of Nfresh air and topical get your chunks. free subscription in biteTosimply size I’m going get it instead of the fill out the form online at: professional adviser papers and financial adviser papers. Enjoyed the read. Keep up the good work! 2 0 12


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For professional advisers only. This clients’ original investmen material is not suitable t is not guaranteed for Investment in bonds . As the annual managemeretail clients. *The expected yield and other debt instrument of 5.5% per annum nt charge is deducted market risk in a down is not a reliable indicator s including related from capital, this cycle. The value of derivatives is subject may be eroded. Past of future performan credit rating of those the fund will move to interest rate risk. ce. The income and similarly to the markets. securities. Non-inves The value of the fund performance is not a guide to future return of your other funds and its tment grade securities A security issuer may performance and may go down if interest liquidity depends may not be repeated. not be able to meet will generally pay rates rise and vice upon also be affected. its obligations to make versa. The fund will Schroders has expressedthe liquidity of those underlying funds. higher yields than more highly rated timely payments of not hedge its securities but will London EC2V 7QA. If underlying funds its interest and principal. be subject suspend or defer Registered No: 2015527 own views and these may change. This will affect the the payment of redemptio to greater market, credit and **Please note that England. Authorised default risk. The fund phone calls may n proceeds, the fund’s and regulated by invests be recorded. Issued the Financial Services in May 2012 by Schroder ability to meet redemption requests in Authority. UK03009 may Investments Limited, 31 Gresham Street,




08 00 718 777 ** uk/h


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funds. If go down The to meet to future nd these underlying than more highly if interest performanc income and return may rated securi its obligations to rates rise e and of your orised and change. **Please funds suspend make and vice ties but will or defer the note regulated versa. The may not be repea be subjec timely payments payme by the Financ that phone calls ted. fund will of interes not hedge t and princip may be record nt of redemption t to greater marke ial Servic t, credit its es Autho proce al. This ed. Issued rity. UK03 in May 2012eds, the fund’s abilityand default risk. The will affect the 009 fund invest by Schro to meet redem der Invest s ments Limite ption requests in may d, 31 Gresh am Street ,

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me air. With .5% paid an income aim of each mon 5.5%* p.a. th. balance. With four well dive ces, bon rsifi d coupon s, dividend ed erty inco me s from come enh and Schroders’ proven ancement strategy. With mul tiple inve stm ated Sch roders’ fund ent strategies istered mas manage Investm, erformaSee entGareth Isaac, Nick rs ts may nce and Funds, and Richmay not beAsia Pac Kirrage, be recobe more ard ific ex Sen repenitt, rded volatile than Jap ated K02 an, . Issu ent with 893fee. Equ sing markets . The ed in valu a ity, May of well e of inve bid tole 2012 by Sch establish stmentsbid in rode me seeking r Inve ed economand stments ies. Limited get on boa clients smile. , rd.

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Sparkling investments || JULIUS BAER LUXURY BRANDS FUND


Swiss & Global Asset Management (Luxembourg) S.A. UK Branch 12 St James’s Place, London T +44 (0) 20 7166 8176 The exclusive manager of Julius Baer Funds. A member of the GAM group.


of Julius advice. It is given for information purposes only. Julius Baer Multistock - Luxury Brands Fund is a sub-fund Important legal information: The information in this document constitutes neither an offer nor investment from Swiss & in the UK. Copies of the respective prospectus and financial statements can be obtained in English Baer Multistock (SICAV according to Luxembourg law) and it is admitted for public offering and distribution the Financial Place, London, SW1A 1NX, as a distributor of the aforementioned fund (authorised and regulated by Global Asset Management (Luxembourg) S.A., UK Branch, UK Establishment No. BR014702, 12 St James’s Baer Group. London, SW1A 1NX, United Kingdom. Swiss & Global Asset Management is not a member of the Julius Services Authority) or by the Facilities Agent: GAM Sterling Management Limited, 12 St. James’s Place,



N E W S R E V I E W C O M M E N T A N A LY S I S 05/09/2012 11:33

IFA14_Cover_Spread.indd 1

|| JULIUS vestments Sparkling in ND BRANDS FU embourg) S.A. agement (Lux al Asset Man Swiss & Glob UK Branch London e, Plac 12 St James’s 7166 8176 T +44 (0) 20 om global-am.c funds@swiss www.swissgl r Funds. of Julius Bae e manager The exclusiv group. of the GAM A member



Julius Baer is a sub-fund of Luxury Brands Fund in English from Swiss & Baer Multistock ed ents can be obtain ment advice. Julius the Financial not qualify as invest tive prospectus and financial statem (authorised and regulated by Group. ses only and does ed fund respec er of the Julius Baer the aforemention for information purpo ution in the UK. Copies of the of memb a utor given not is is distrib ent a distrib docum 1NX, as Management information in this is admitted for public offering and St James’s Place, London, SW1A Swiss & Global Asset information: The 12 United Kingdom. Important legal bourg law) and it nt No. BR014702, London, SW1A 1NX, Place, ’s according to Luxem S.A., UK Branch, UK Establishme James (SICAV St. tock d, 12 ) Multis ement (Luxembourg g Management Limite Global Asset Manag by the Facilities Agent: GAM Sterlin or Services Authority)



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For investment professionals only. Not to be viewed by or used with retail clients. * Calls may be recorded for training and monitoring purposes. Calls are free from a BT landline. Call charges will vary from other networks. The value of an investment can do down as well as up. Investors may not get back the original amount invested. Aviva Investors is a business name of Aviva Investors UK Fund Services Limited. Registered in England No. 1973412. Authorised and regulated by the Financial Services Authority. FSA Registered No. 119310. Registered address: No. 1 Poultry, London EC2R 8EJ. An Aviva company. MC2753-V001-262050-CI062359 10/2012

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IFA Magazine February 2013  

For the proper tidy financial chap or chapess

IFA Magazine February 2013  

For the proper tidy financial chap or chapess