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For today ’s discerning financial and investment professional

Henderson: A Changed World For Advisers Fixed Interest: Is The Party Over?

Costing The War Against Jihad

AUTUMN CHILL Slower Growth, Says The IMF. Is The Market Worried?

OCTOBER 2014

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CONTENTS C O N T R I B U TO R S

Brian Tora an Associate with investment managers JM Finn & Co. Steve Bee founder of Jargon FreePensions, and of Jargon FreeBenefits.

Lee Werrell a senior compliance consultant and industry adviser.

Richard Harvey a distinguished independent PR and media consultant.

Nick Sudbury known for his columns in many leading financial magazines.

Gillian Cardy Network Development Director at ValidPath.

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

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

10.14

THE FRONTLINE:

The IMF says it’s looking bad; the markets say the downside is being overstated.

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

14

Fighting Islamic State Cost isn’t the major issue but let’s at least put some numbers on containing the jihadists

18 A Question of Sport Neil Martin talks to Castle Court’s Jack Price about rugby, client service and the decision to go SJP

23 Spend, Spend, Spend?

A new report from Natixis casts a worrying light on how clients may blow their pensions after April

28 The Seven Ages of Income Part Two of a three-part series on using income products during critical stages of life planning

33 Double Act IFA Magazine talks to the co-managers of Kames Ethical Cautious fund

36 No More Mr Sales Guy Today’s adviser market needs more from the fund houses, says Henderson’s Simon Hillenbrand

40 The Rime of the Ancient Pensioner Steve Bee narrates a terrible yarn about loss and hardship on the high seas. Bring your own albatross

Editor: Michael Wilson

43

Art Director: Tony Merlini

The EIS Imperative

Publishing Director: Alex Sullivan

IFA Magazine’s seminar explains why Enterprise Investment Schemes are getting so much attention

editor@ifamagazine.com

tony.merlini@thewowfactory.co.uk alex.sullivan@ifamagazine.com

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CONTENTS

46 An Autumn Chill Independently-minded IFA Ian Coley on reform, regulation and having great clients

48

Bonds – Is the Party Over?

Six senior fund analysts tell IFA Magazine that there’s life in fixed interest markets yet

52 Taming Your Technology Compliance consultant Lee Werrell says advisers need to tighten up on operational and conduct risk

56 FCA Publications and IFA Calendar In the news, in print and in court. Our monthly listing of what’s new in FCA-land

60 Due Diligence (zzzzzz) What on earth does the FCA expect to get from next year’s Thematic Review, asks Gill Cardy?

65

IFA Magazine is for professional advisers only.

Full subscription details and eligibility criteria are available at: www.ifamagazine.com

Thinkers: Jim O’Neill The brains behind the BRICs ‘IFA Magazine’ is a trademark of IFA Magazine Publications

66 The Other Side Richard Harvey says April’s pension deregulation might just save a few red faces

Limited. No part of this publication may be reproduced or stored in any printed or electronic retrieval system without prior permission. All material has been carefully checked for accuracy, but no responsibility can be accepted for inaccuracies. Wherever appropriate, independent research and where necessary legal advice should be sought before acting on any information contained in this publication.

IFA Magazine is published by IFA Magazine Publications Ltd, The Old Wheelwrights, Ham, Berkeley, Gloucestershire GL13 9QH Tel: +44 (0) 1179 089686 ©2014. All rights reserved

IFAmagazine.com

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WORDS OF WILSON

October 2014

Are You Feeling Lucky?

They say a week is a long time in politics. And it’s not so very different in the world of financial magazines. Today’s accepted wisdom has a habit of becoming tomorrow’s discredited theory

Which is why you’ll have to excuse me if I sound unusually wary this month.

As we went to press, the Footsie was nearly 8% below the levels of early September - having taken a sudden fall as soon as St Leger’s Day was safely behind us. (So there’s another proud stock market tradition for the can, then….) But spare a thought

for Europe, where the 9% Eurofirst 300 plunge in four short weeks hadn’t even been allowed the dignity of a face-saving dead cat bounce along the way.

Which is why you’ll have to excuse me if I sound unusually wary this month. As we went to press, the Footsie was nearly 8% below the levels of early September - having taken a

sudden fall as soon as St Leger’s Day was safely behind us.

(So there’s another proud stock market tradition for the can, then….) But spare a thought for Europe, where the 9% Eurofirst 300 plunge in four short weeks hadn’t even been allowed the dignity of a face-saving dead cat bounce along the way.

You’d have read the same sad story in Tokyo, where

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October 2014

a 7% fall in just two weeks seemed to herald the end of optimism about Shinzo Abe’s ‘Three Arrows’ reform policy.

And even the mighty S&P had dropped 5.5% over three weeks, as the usual yattering about cyclically adjusted p/e levels and the over-hasty progression toward higher interest rates took their toll on sentiment.

Anybody still feeling cheerful? I mean, with borrowing levels still stretched but with interest rates probably heading northward? With the oil price still on the floor, thanks to a general belief that China’s requirements are likely to stagnate? And with US corporate profits set to shrink?

The Bearer of Bad Tidings

Reality Check

This time round, you can probably lay the blame squarely at the IMF’s feet. Its World Economic Growth report on 6th October demoted the globe’s prospects yet again, with a revised estimate that this year’s growth will be only 3.3% instead of the 3.7% it had forecast in July. And the Eurozone was right in the crosshairs, with its 2014 growth forecast slashed to 0.8%, and with Germany reporting a 4% shortfall in industrial production in August. Meanwhile the IMF also damned Japan by halving its 2014 growth forecast to just 0.9%.

But not so fast, what’s this?

The Shanghai Composite has put on 12% since mid-July.

The UK is now officially the developed world’s fastest growing economy. The Russians have renewed their talk about a pull-out from Ukraine, as the weight of western sanctions bears upon them.

Mike Wilson, Editor

And actually, a 3.3% global growth rate isn’t that bad.

Indeed, it isn’t very far short of what used to be considered a ‘sustainable’ growth level, back in the bad old days before Chinese tech companies did their fancy IPOs in London.

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NEWS

Another Nail in the Coffin Moneyfacts, enhanced annuities (which take illnesses and so forth into account) saw a much smaller reduction of 1.3% over the same eight months; but the last few months have seen enhanced annuity rates falling much more steeply than standard rates.

If you think it’ll all be over for annuities next April when the pensions liberalisation comes in, the following probably won’t change your mind. But if you’re still watching the market, spare a thought for the poor devils who have to sell them

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Pensions Moneyfacts’ figures show that the average annual income from a typical standard annuity for a 65-yearold, based on a £50,000 pension pot, fell by 2.6% in August – meaning, it says, that the average

income from a £50,000 pot fell from £2,874 to £2,797. Or £1,540 over a 20-year retirement.

More worrying is the fact that it brings the shrinkage since the start of the year to 3.2%. Yes, says

And secondly, they say, the growing pressure facing annuity providers to cut their rates - largely in response to the lower demand for annuities since the March Budget gave retirees more flexibility in how they can spend their pot.

Now surely that’s what we used to call a vicious circle?

In the midst of life we are in death

Average Standard Annuity

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1 August 2014

£2,874

£3,390

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Annuity figures show gross annual annuity payable monthly in advance.

Figures are based on a £50K purchase price for a level without guarantee annuity.

Source: Investment Life and Pensions Moneyfacts

New joint research from Investment Life and from the Moneyfacts comparison website has shown that annuity rates experienced their worst monthly fall for three years during August 2014 – right at the moment when you might have expected the providers to be wary of disappointing potential buyers. But that’s the trouble with actuaries.

The spreadsheet calls the tune.

The authors say there are two main factors behind the fall in annuities. Firstly the major drop in 15-year gilt yields, a major influence on annuity rates, which are now at their lowest level since June 2013.

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NEWS

Sweet Victory It’s been another of those months for Chancellor George Osborne. And not before time, his supporters would say

Fresh from his triumph at the Conservative Party Conference in Birmingham, where he wowed the Tory faithful with the revelation that the 55% “death tax” on over-75 pension pots was to be abolished, the Chancellor was able to sit back and savour the sweet sensation of his biggest critic, the International Monetary Fund, crawling back from its previous assertion that Osborne’s hefty expenditure cuts had slowed the economy unnecessarily.

It must have been especially good to hear the IMF chief economist

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Olivier Blanchard declaring that it now expected the UK economy to continue to grow strongly – easily achieving its July forecasts of 3.2% growth in 2014 and a probable 2.7% in 2015. And that, it confirmed, would be enough to make Britain the fastestgrowing developed economy in the world – ahead of the United States, whose growth estimate it raised from 1.7% to 2.2%.

David Cameron will have been gloating over Mr Blanchard’s declaration that the European Union growth scenario was now becoming ‘country-specific’

The European Exception But his boss David Cameron will have been gloating instead over Mr Blanchard’s declaration that the European Union growth scenario was

Olivier Jean Blanchard, Chief Economist, IMF

now becoming ‘countryspecific’ – a delicate way of implying that the monolithic structure of the euro zone was damaging every region that fell within its orbit – whereas nonEuro club members like Britain were able to remain floating free of the general mess.

Unsurprisingly, Mr Osborne grabbed the IMF report as “further evidence that the government’s long economic plan is working”. But not quite so fast, George. The IMF warned that ‘buoyant’ house prices still pose ‘challenges’ for the UK, and that household debt in Britain is too high at 140% of disposable income – even though it

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NEWS IN BRIEF

was down on its precrisis peak of over 160%.

Pensions – The Other Boot Falls But the papers had already moved on by that stage to Mr Osborne’s other triumph – the planned abolition of the punitive 55% “death tax” that effectively lands on the beneficiaries of people who die at the age of 75 or over without ever touching their pensions – or those who haven’t ‘crystallised’ their pensions by going into a drawdown account. It was, in effect, a tax on people who hadn’t got the hang of a drawdown arrangement, and it always did seem like a bit of a sour-grapes move from HMRC against those who’d

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George’s other triumph is the planned abolition of the punitive “death tax”

sensibly refused to buy an annuity that would see the whole lot disappear as soon as they popped their clogs.

Under the new rules, if the person who dies is 75 or over, the beneficiaries will be required to pay tax at their own marginal rates when they draw

down the resulting income. If the person who dies is under 75, on the other hand, there will be no tax to pay.

In its way, this is simply a logical progression from the April 2015 changes that will encourage DC pension pot holders to regard their pots as their own money. It will probably also give them further encouragement to shun annuities.

Gothic Horror Global stock markets dropped in early October, as an IMF report suggesting a slowdown in global growth coincided with fears about instability in the Middle East and a particularly depressing outlook for German manufacturing. By 14 October the FTSE Eurofirst was down 6.5% and the Footsie had dropped 4.5%. The VIX “fear gauge” hit 24.6 on 13 October, the highest in 28 months.

What’s the new measure going to cost the Treasury in lost revenues? The best estimate is £150 million a year. When’s it coming into force?

Sometime in 2016-17, as far as we can see.

Which, by no particular coincidence, is on the other side of next May’s general election.

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NEWS NEWS IN BRIEF

Social Services Social media use by staff members is still going largely unregulated by advisory firms, according to research by Intelliflo.

They found that although 58% of advisers are using social media, only 25% have policies regulating how employees should use it.

The FCA is currently consulting on guidance (GC 14/6) on ways of tightening the rules.

PIIGs - Flying Back

A Drop of Oil Crude oil prices continued to drop on expectations that China and other emerging countries might soon be needing less energy, and that US and European demand was weakening. Brent was at $88 on 14 October, down from $115 in June.

From Russia With Love Russia’s central bank intervened to support the rouble, following worries about the low prices being offered for its oil exports, together with trade sanctions being imposed by the EU over the country’s alleged presence in eastern Ukraine. As IFA Magazine reported in September, there are also concerns about the country’s ability to reschedule some corporate bond debts.

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You’ll have to forgive us if we seem a little downbeat this month Maybe it’s the backto-school sentiment after a summer season filled with brickbats that seem to have been falling off lorries into our collective paths.

As if October’s grim news about falling productivity in Germany wasn’t enough on its own to dampen the European spirit just ein kleines Bisschen?

Germany’s four most prominent economic research groups slashed their 2014 GDP growth estimates on 9 October to just 1.3% from a previous 1.9% estimate.

And as for next year, their collective forecast dropped from 2% to a mere 1.2%. No wonder the markets had a fit of the wobbles, with the FT EuroFirst 300 dropping by 4% in a week.

But what, please, are we to make of the news from southern Europe? August’s grim report that Italy’s gross domestic product had contracted by 0.2 per cent in the second quarter after a fall of 0.1 per cent in the first quarter – thus fulfilling the technical definition of a recession?

France’s claim in September that its GDP would make only 0.4% growth in 2014, and a sharply-reduced 1% in 2015? And its impending decision to ask for yet more time to get its budget deficit down below the 3% threshold demanded by the EU? After all, President François Hollande’s government had already negotiated one two-year delay, from 2013 to 2015, to sort out the mess, but it clearly wasn’t enough.

The drop-back in Portugal’s secondquarter GDP, from 1% annual growth in the first quarter to 0.9% in the second, which was François Hollande

The French government had already negotiated a two-year delay to sort out the mess, but it clearly wasn’t enough

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NEWS IN BRIEF

Pedro Passos Coelho

wards? announced ominously late on 10 September?

The brave talk from Prime Minister Pedro Passos Coelho about how “of course” it would accomplish its fiscal targets for this year, despite having had to blow 4.9 billion euros on a rescue package for its biggest bank, Banco Espirito Santo?

(Thus pushing bond yields back up after a period of decline.)

Greece’s secondquarter GDP contraction of 0.3% year on year, coming on top of a 1.1% shrinkage in the first?

Or the thought that its

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Gross Behaviour

Portugal have first-half contraction was closer to 3.3% at current prices?

Thank goodness, then, for Spain and Ireland, both of which offered some respite from the gloom.

Dublin announcing that it would be able to repay the EU funds for its bank bail-out ahead of schedule, and Madrid swelling its exports as the Spanish government raised this year’s growth forecast from 0.7%

spent 4.9 billion euros rescuing

PIMCO boss Bill Gross staged a noisy exit from the world’s most successful bond fund, following what the firm called “fundamental differences about how to take PIMCO forward.” Gross has gone to tiny Janus, where he is now expounding the advantages of running small funds instead of big ones.

it’s biggest bank, Banco Espirito Santo

to 1.2% - and to 1.8% in 2015. These days you have to take your good news wherever you can find it.

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NEWS NEWS IN BRIEF

Don’t Bank On It British banks were ordered by the Bank of England to present plans for ring-fencing their retail operations from their riskier operations. The banks have until 6 January to show how they will comply with the core deposits threshold by 2019.

Which will be challenging, since the core threshold has not been decided yet.

Oh, The Shame Of It Britain’s economy may be outstripping most of its European rivals at the moment – indeed, according to George Osborne we’re beating the world – but UK households are slacking when it comes to how much of their disposable cash they’re saving each year

Bits and Pieces Bitcoins continued to struggle, with the Coindesk quoted price dropping to $319 on 5 October, down from $1,147 last December. But the popularity of the new medium seems unstoppable – Pakistan has just opened its first bitcoin exchange.

Failure to Launch Rocket Internet, a German tech company, signalled that being whizzy is not a passport to riches as its IPO crashed soon after launch.

The subscription price of €42.5 had dropped to €35 by 10 October, a fall of some 15.5%.

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If an Italian Well, sort of. If you think Spain and Italy are having a hard time, you might be surprised to hear that, according to the Post Office’s Future of Savings Study, they are potentially able to save more than us. In fact, says the Post Office, the UK currently sits eleventh in a league table of average potential household savings across 18 advanced economies.

And only just ahead of Portugal, which is battling with real trouble at the moment.

The Post Office’s study, conducted alongside the Centre for Economics and Business Research, examined the savings habits of these 18

prefers the coffee shop and a Spaniard spends it all on lottery tickets, how do these figures help?

countries against a comparable cost of living, and it found that since 2010, the average amount that each UK household could potentially save each year has fallen by more than 10% to £3,781.

That was almost £5,000 less than Australia, which has the most money available to save, and it’s fully £3,286

less than the highest placed European country, Switzerland.

Should this trend continue, Post Office Savings predicts that by 2018 Britain’s average of £3,781 will have fallen to as little as £3,000 – which, it says, would place the UK below the majority of advanced European economies.

The Ugly Details Rather incredibly, says the Post Office, the average potential household savings for Spain and Italy country came to a staggering £4,644 and £5,409 respectively in 2013. Whereas of all the countries analysed, Estonian households had the smallest amount of money available to save

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NEWS IN BRIEF

each year, with only £1,039. Interestingly, the report adds, the US actually fares worse than the UK, with a pot of only £3,442.

Do Those Figures Really Mean That?

But hold on there. What we’re looking at here is a potential pot, not an actual one. Stop us if we’re wrong, but surely there are limits to how much of the available cash actually goes into savings?

If an Italian prefers the coffee shop and a Spaniard spends it all on lottery tickets, how do these figures help?

Subject to those provisos, the report’s findings can be found at www.postoffice. co.uk/savings/futureof-savings-survey

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Crowd Control Crowdfunding has now crossed the $10 billion threshold worldwide, it was claimed, with the amounts raised rising from $500 million in 2009 to almost $5 billion in 2013, and with an average 76% per year growth rate. There are currently over 450 crowdfunding platforms worldwide, mostly in the US and Europe.

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SOAPBOX

October 2014

The Cost of Islamic State How do we quantify the potential cost of the struggle against jihadists in Syria and Iraq?

Michael Wilson asks some tough questions They say that the great Irish playwright George Bernard Shaw was once challenged to a duel. To which he replied that, as the recipient of the challenge, he had the traditional right to choose the means of combat. And that his choice of weapons was to be a pair of field guns across a card table.

His challenger immediately backed off, knowing that he would be instantly dead from blast injuries even if he were lucky enough to get the first shot in.

Sensible chap. Whatever else GBS might have been – and he had some pretty convoluted thinking about military force – he had nailed one of the most important dangers of all. Namely, that the collateral damage from any confrontation could be just as bad if you won it as if you lost.

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Unfortunately, it looks as though Barack Obama has no real choice but to accept the odds. Six months ago, the US president told the American people that only fools and dyedin-the-wool warmongers would find reasons to send American troops back into the Middle East, from which they had only recently been withdrawn.

But now they’re back in.

What’s so striking now, however, is not just the strong cross-party political support that America’s abrupt return to the military front in Syria and Iraq has received. It’s also the welcome that the move has received among the population at large. Seldom can a U-turn have been so politically effective.

No Ordinary Evil But then, the so-called Islamic State which is now ravaging Syria and Iraq is no ordinary

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October 2014

IS has set its sights on forcing its dominion on the Islamic world, but it has left the West in no doubt that we are next. In short, the rise of Islamic State looks to most people like the sort of evil that surely nobody can ignore

enemy. At ground offensive level it’s possibly the most committed perpetrator of supremacist atrocity since the holocaust. And at organisational level it’s in a different league from anything the world has seen before.

It’s rich, for a start, because it receives hundreds of millions of dollars in support from all over the Middle East, some of it in bitcoins. It may already have a billion dollars in the bank, and it gets richer with every oil well that its soldiers capture.

It’s technologically savvy, with a mastery of social media that ought to scare everybody.

And it’s operating in a region where frightened minority communities sit huddled and waiting to be rounded up for possible execution.

For the moment, IS has set its sights on forcing its dominion on the Islamic world, but it has

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October 2014

left the West in no doubt that we are next. In short, the rise of Islamic State looks to most people like the sort of evil that surely nobody can ignore.

The Cost?

We are already being assured that the fight will take decades, not months, even if the current physical campaign were to sweep away the insurgents quickly. Which is why we cannot really imagine that the western world’s spending on this campaign will do anything but escalate in the coming months and years.

What form will the offensive take? At present the US initiative revolves around remote air strikes against IS positions in Syria and Iraq – Britain was operating in Iraq only at the time of writing but the near-certainty is that ground penetration will need to follow if civilian casualties are to be restrained. And, all the while, Western nations will need to step up their own security and surveillance systems in ways that we’ve hardly even considered yet.

All of this, God forbid, is for the future. And accordingly it will be clear that we don’t yet have much to go on when trying to calculate the cost of this particular struggle.

But without any figures at all we don’t even have a starting point. So here goes.

SOAPBOX

$780 million and $930 million so far in its military campaign against Islamic State. The probable cost at current levels would pan out at between $200 million and $320 million per month if a contingent of 2,000 U.S. service members were deployed on the ground.

And that’s just for the United States alone. So how much more military support will be needed? How long is a piece of string? It does not seem unreasonable to suppose that the overall effort might need to treble or quadruple. And suddenly, front-line international defence costs of $50-80 billion a year do not seem so fanciful.

For comparison’s sake, that’s about 0.5% of US GDP. Or the amount of quantitative easing that the Federal Reserve was pushing out every single month until very

Crude oil has remained staggeringly cheap throughout the conflict so far, with Brent nudging $90 in mid-October. But then, Iraq has sharply reduced since March by the Islamic State attacks on its pipeline to Turkey, so you could say that the damage has already been discounted

At the end of September the independent Center for Strategic and Budgetary Assessments in Washington estimated that lower-intensity air operations could cost $2.4 billion to $3.8 billion per year, rising to between $4.2 billion and $6.8 billion if the pace of airstrikes should increase in any sustained fashion.

The Washington Post considered the 260 airstrikes launched by US forces in Iraq and Syria since 8 August – plus around 50 Tomahawk missile strikes at $1 million apiece – and concluded that the US had probably spent between

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October 2014

recently. It won’t be the end of civilisation as we know it.

But a concerted cyberattack or a major terrorist operation in the west might be any times as harmful. That’s the prospect that is presumably concentrating the market’s mind at the moment – by the second week of October the Footsie had taken a 6% bashing from its July level, and the S&P was down 4% from mid-September alone. Bond yields were ticking upward – and, although nobody was in panic mode, there was general agreement that only a real contrarian would consider this a good time to go in heavily.

Measuring the Consequences Now, there are many people who object, for perfectly principled reasons, to the idea of computing the economic effects of a military campaign. The US militaryindustrial complex made a

A member of the Kurdish security forces guards an oil refinery on the outskirts of Mosul

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fortune out of the Vietnam war, they argue, and anything that smacks of similar thinking stinks to high heaven. (The observation that US economy soared during the Second World War as its manufacturing moved into overdrive meets with a slightly more muted response.)

insurgents. But there’s plenty of scope for further blocking and game-playing – some of which may relate to the tense situation in Ukraine as much as anywhere else. It would be no surprise if Moscow tried to leverage the Syria situation in an attempt to extract economic concessions.

But, whether we like it or not, the awkward truth remains that armed conflict is often a stimulus for an economy – at least, until the debt issuance comes home to roost. (That’s subject, of course, to the important proviso that terrorism doesn’t knock out the information and travel infrastructure, or compromise the energy supply industry.)

As we discussed in this column last month, America has no particular reason to fear Russia’s wrath - except for the bizarre possibility that, if it continues to block Russian companies from refinancing their debts, their own share prices in Moscow might hit the dust in a way that would shake their foreign shareholders to the core. Bloomberg reports that Russia’s major banks will need to refinance $15 billion worth of bonds denominated in dollars, euros and Swiss francs during the next three years. And that if they can’t raise the money, their creditworthiness may come into doubt and the whole system may become unstable.

Should we ask about the impact of this conflict on the oil price? A first glance suggests not. Crude oil has remained staggeringly cheap throughout the conflict so far, with Brent nudging $90 in mid-October.

That’s down from $115 in midJuly, by the way. But then, Iraq has sharply reduced its oil exports since March because of the Islamic State attacks on its pipeline to Turkey, so you could say that the damage has already been discounted.

Booming US shale production has cushioned the West from what might otherwise have been a crippling blow.

Getting At The Truth We should face the likelihood that both the strategic ground and the political justification are likely to shift in the coming months. If IS were ever to decide to stop killing its victims and to start holding them instead as human shields, the West would be faced with an agonising moral dilemma that might well split the support back home in Idaho and Pennsylvania.

A more immediate question might be to wonder which way Russia will play the current situation. An unashamed supporter of Syria’s president Assad, Vladimir Putin has been crowing about the West’s forced realignment with his troops in their battle against the Islamist

In short, the more we look at the Middle East situation, the more it becomes impossible to limit the potential for damage, however remote. In a fully inter-connected world, it could hardly be otherwise.

Back To Shaw We opened with George Bernard Shaw, and maybe we should close with him. GBS was stroppy old polemicist at the best of times, but he left little doubt that he wouldn’t have been particularly squeamish about the carnage that Obama’s campaign against Islamic State would surely entail.

In his 1905 play Major Barbara, Shaw allows the loathsome arms manufacturer Andrew Undershaft to win the moral argument against his adversaries, the Salvation Army peace protesters, by brutally declaring: “Nothing is ever done in this world until men are prepared to kill one another if it is not done”. Embarrassingly, 109 years later, nobody has yet come up with a counter-argument that really convinces.

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I FA V I E W

October 2014

Here Be Dragons Jack Price, Partner, Castle Court Wealth Management LLP, talks to Neil Martin

If you’ve ever wondered where Welsh rugby stars go when they retire, then Cardiff-based Castle Court Wealth Management LLP would be a pretty good place to start looking. There are no fewer than five former Welsh international players and British Lions involved with the firm - either on the payroll or as clients.

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I FA V I E W

October 2014

“We’re fortunate in that Martyn’s off-field activities are similar to his on-field activities: he’s generally accepted to be an intelligent individual with a very grounded perspective.”

And with figures such as Martyn Williams (MBE), Jamie Roberts, Lee Halfpenny, and Jonathan Davis around the place, you won’t be surprised that a love of sport runs right through the firm’s identity. To stay balanced they also extend across the bridge with the likes of Stephen Myler and Lewis Moody.

But then, Castle Court’s founders aren’t exactly uninvolved.

One of the founder partners Andrew Booth played professional rugby with Cardiff and Wales and represented Wales at all levels, including being part of the Welsh squad at the 1991 World Cup. But that wasn’t the reason I was there to talk to co-founder Jack Price, one third of the team who run the business (Richard Gough is the third member). No, we were discussing the firm’s decision to sign up in 2012 as a partner practice with St James’s Place Wealth Management. A decision that wasn’t taken lightly, but which Price feels has been more than worthwhile in terms of the way it’s freed up capacity for dealing with the firm’s clients.

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A Long Campaign Castle Court had ploughed its own furrow for about ten years, he says, until the three partners realised that having the support of a company with a major research and back office function would allow them to do what they do best - handle the affairs of their clients. But there was nothing hurried about the decision to sign on SJP’s line.

“I think we’d reached the peak of where we could go with the IFA world,” he told us. “A world fraught with difficulty. We were set up technically to be as strong as we could in the IFA world, but it still wasn’t really working. We arrived at the point where the world turned on its axis in 2008 and the very nature of advice changed - the fallout from that has been horrendous for the IFA community in general. It’s a tough world as an IFA now and so many good practices are struggling to maintain a solid business model” “By far, the biggest fundamental is that you have to look at your capacity as an

advisor. We used to run our asset and allocation models on a monthly basis. There were three guys with over 60 years’ experience between them, looking at the best offerings we had to meet clients requirements to achieve circa 3% above inflation on invested monies, and we were asking ourselves what was the best way to be doing that on the balance of modelling funds?”

The approach, when it came, was gradual. “When we met with St James’s Place in 2010 to begin the conversation with them, we were also looking at an offer of a purchase from a London financial firm and a Bristol/South West based accountancy firm.

We had some sizable and viable options already on the table. But, as far as we were concerned, I couldn’t see how those other two would fundamentally improve us as a business offering.”

The logic of affiliating to St James’s Place, he says, was partly that the Castle Court team felt it could move from benefit from being a part of a bigger team. “In fact what they were

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October 2014

intelligent individual with a very grounded perspective.”

“We thought he’d would naturally align to running the sports advisory proposition, but very quickly he realised that although the sport was enjoyable, he was getting a lot more enjoyment out of dealing with the business owners.”

And then there are the firm’s extensive roster of media and entertainment clients, including presenters, bands and opera singers. Price says that although there are a lot of similarities between sports stars, and the media, and entertainment, the latter area can be more fragile.

“The majority of contracts are short term” he says. “It might only be a record deal, or a media contract. Our view is that sensible cash-flow forecasts over the three years will illuminate real wealth shortfalls.

“We are still the planning firm we were. But nowadays, when I come in on a Monday morning and I have access to no end of credible research information, provided by a FTSE 100 company with 47 billion under management to support our planning models, it makes a difference.”

Stadium Appeal The firm has three areas of focus, Price says - SMEs (mainly owner manager businesses), private clients and media, sports and entertainment types. And it’s remarkable, he says, how well the various elements mesh.

Take the firm’s very own Martyn Williams, for example.

“We’re fortunate in that Martyn’s off-field activities are similar to his on-field activities: he’s generally accepted to be an

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SME Requirements Price is at pains to explain that the firm tries to develop long term relationships with its clients, especially the individuals running businesses. “We don’t have a huge number of clients, so a lot of the client relationships tend to go beyond being just the financial adviser or the wealth manager.

It becomes a weekly conversation and a check on the actions that they’re taking. These individuals are time poor so will engage a trusted resource frequently over a wide scope of subjects.

What concerns Price and his partners is the number of business owners who don’t have an exit planned out. He continued: “It’s frightening how

At the end of the day, if the firm ever does have a difficult meeting with a business client, there’s one last trick in its repertoire. “You can have a fairly honest conversation without them getting offended,” says Price.

“And if they do get offended – sharing a beer with one of our sporting clients usually relaxes the issue! It’s a strategy that appears to be working!”

Castle Court co-founder Jack Price

offering was a comprehensive research, compliance and legal engine to trade under. What other IFA in this position can say that they are spending around ten million pounds a year researching the best possible talent to run our clients’ money?”

“But music stars are sheltered from the daily machinations of life, because of the lifestyles they lead. With a lot of these industries - media, music, sport - a lot of the day-today costs of life are met by other people. And sometimes Price admits that they have to “put a bit of dose of reality on it” – and that it becomes the adviser’s job to spell out the realities of fame and not always fortune - and the need for financial planning.

many you sit with and it all sounds very good, until you ask about an exit and they look at you with completely fazed eyes.

That’s pretty much what our role is – to establish how much money they need and how realistic is the time scale for getting it.”

“We are still the planning firm we were. But nowadays, when I come in on a Monday morning and I have access to no end of research information, and we have a Footsie 100 company with 47 billion under management behind us, it makes a difference”

Check the video of Castle Court’s decision to sign up with SJP at: http://tinyurl.com/lyxedmb

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14/10/2014 12:24 16:05 16/10/2014

N AT I X I S S U R V E Y

October 2014

The Urge To Splurge Next April’s pensioners are still frightening advisers, a new survey suggests

Don’t look now, but April is less than six months away. And, unless we’ve been missing something, the gushing torrent of activity in advance of the pension reform is proving to be a little less busy than we might have expected at this point in the transitional process.

That, of course, is a disgraceful slur on the tens of thousands of advisers who are working tirelessly around the clock to support their existing clients in advance of the change of regime in April 2015. But it’s not so very far wide of the mark for the majority of the population who don’t currently use an adviser - and who have probably become less likely to go down the adviser route since commission-only was scrapped in January 2013.

So What of the Orphans?

Of the 400,000 DC pension holders who’ll be retiring in the twelve months from April 2015, probably three quarters will set sail upon the ocean of new opportunity without anything more than the Guidance Guarantee advice from the government.

Which isn’t really advice at all, of course - more of an explanation of the options and the priorities, which we can only hope they’ll understand when they get it.

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October 2014

N AT I X I S S U R V E Y

Indeed, one of the problems we inevitably face, when looking at this issue, is that we don’t have much of a view of how the ordinary man or woman views the pensions issue. It’s only the people who currently use an adviser who we’re going to be able to poll, and probably to influence, in advance of the great day. That’s a significant statistical gap which we overlook at our peril.

Of the 400,000 DC pension holders who’ll be retiring in the twelve months from April 2015, probably

Shock Tactics

The Bank That Needs To Say Yes

three quarters will set

Subject to that rather large caveat, some hard figures do seem to have emerged from the latest poll of UK advisers by Natixis Global Asset Management, which interviewed 300 UK adviser firms during June and July 2014. And it doesn’t sound good. A massive 23% of Natixis’s UK respondents declared that they expected a majority of their clients to withdraw their entire pension pots as a lump sum on retirement.

On the other, however, the pressure on the newly retired to help fund the next-but-one generation’s first-home purchases is likely to prove substantial.

And when you consider that many of the aforementioned grandchildren are currently stuck at home with their beleaguered parents – as 26% of 20-to-34 year-olds are currently doing† - then you can imagine that the newly-solvent Bank of Gran and Grandpa may get its arm more than usually twisted.

sail upon the ocean

Pause for effect. Let’s remember here that we can safely assume that IFA clients include a sizeable proportion of the better-informed public, with generally larger than average pension pots. So if even those people are being expected to bolt for the exit doors, what are we to expect of their non-advised (or not-verywell advised) contemporaries?

Slightly less dramatic is the news that 57% of Natixis’s UK adviser sample said they expected at least “an increase in the level of people squandering their pension pots” after April.

Indeed, it would seem to us to be a little naïve for the remaining 43% to expect anything else.

On the one level, the Ferrari salesmen will be better advised not to whip out their notebooks too quickly.

We’re all aware that most of next year’s new pensioners would be very poorly advised to grab everything in their pension pots immediately upon retirement. Once the first tax-free 25% has been drawn down, the remainder will be taxed at their marginal rate – which, for many, will mean that grabbing too much in any one year may send them into a higher tax band where they don’t need to be.

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Good News, Bad News

You’ll be glad to hear, then, that Natixis reckons the pension liberalisation will indeed bring new business for advisers. 72% of the 300 UK respondents said that they expect demand for their services to increase, because they think that investors will recognise that they need more help.

That would be fine, says Natixis, if it weren’t for the inconvenient fact that many advisers have scaled back their services to less affluent clients since RDR. 31% of respondents agreed that they had been obliged to adjust the asset levels at which clients would be able to engage their services.

Indeed, from an operational

of new opportunity without anything more than the Guidance Guarantee advice from the government. Which isn’t really advice at all, of course - more of an explanation of the options and the priorities, which we can only hope they’ll understand when they get it

point of view, we think it would be surprising if the proportion were as low as that.

The survey, as you’d expect, forms part of Natixis’s usual international adviser survey, which takes in 1,800 advisers from nine countries – 750 from continental Europe, 300 from the USA, and 150 each from Hong Kong, Singapore and the United Arab Emirates. And it’s excellent reading in its own right, although we should remind ourselves that its scope is global. You can read it at http://tinyurl.com/n6wjeaz

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October 2014

Subject to that proviso, a rather shocking 54% of these wealthy respondents admitted to “not having any financial goals” (Natixis’s wording, not ours),

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Source: Office for National Statistics, January 2014

Good question. For that, we need to turn to Natixis’s March 2014 survey of 750 UK individuals – all of them with a relatively high minimum net worth of US$200,000 (or PPP equivalent) of invested assets. So don’t expect any very good clues about the man in the street here.

†

So What Do the Investors Think?

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N AT I X I S S U R V E Y

October 2014

and 33% said that they “didn’t have a good understanding of the income they would need to live comfortably in retirement”.

79% said they “lacked strong investment knowledge” and 47% said that they had “little or no knowledge of investments that can produce a stable income in retirement.”

Back To The Advisers What do the 300 UK advisers think about this? Natixis’s survey is at least honest, even if it doesn’t manage to be encouraging.

• “Only 51% of advisers” told the researchers that they were “very confident their clients’ current investment strategies were able to ensure

appropriate diversification” – down from 75% in 2012.

• Only 19% said they were “very confident their clients’ current investments were able to preserve capital” down from 40% in 2012.

• 21% said they were “very confident their clients’ current investments would be positioned to take advantage of bull market periods”, down from 52% in 2012.

current investments would be able to provide steady income at retirement” compared with 57% in 2012.

So is that good news for advisers, or bad? Does it, perhaps, indicate that both clients and advisers are aware of the pension pitfalls - and of the tricky state of the current investment market?

Does it, in fact, denote a healthy will to learn?

• Only 29% said they were “very confident their clients investments would be able to protect against longterm inflation” - down from 49% in 2012.

Or is it a collective shrug in the face of the unknowable – a situation where the consumer might feel that he might as well have a Jag in the garage as a 50-50 bet on an uncertain financial future?

• And just 23% said they were “very confident their clients’

Questions, questions. And only six months to go.

Of the 300 UK advisers surveyed

by Natixis just 23% said they were “very confident their clients’ current investments would be able to provide steady income at retirement” - compared with 57% in 2012

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INCOME INVESTING

October 2014

The Student, the Lover and the Mortgage Warrior Michael Wilson continues his three part series on the role that income investing can play in lifetime financial planning

Last month we kicked off our investigation of the income investing scene by invoking Shakespeare’s “Seven Ages of Man” as a sort of metaphor for the way that the need for relatively reliable forms of investment comes and goes as an individual passes through the various stages of life.

life. We agreed last month, for instance, that there are certainly times when a young man or woman can probably afford to rip it up and live dangerously for a bit – perhaps by taking a higher-risk position in the knowledge that if it all goes wrong they’ve still got another forty years to recover their losses.

Think of it as a whistle-stop tour of a growing human being’s risk profile, and perhaps we’ll get a little closer to understanding why income investing is still one of the most potent answers to the fundamental needs that will arise at certain key moments in life.

But, we added, risk isn’t such a great thing if the money involved belongs to your infant child, or your parents, or if it’s been earmarked for school fees, marriage, house buying, future healthcare needs or retirement.

Income investing can be a family thing, and psychology plays an important part.

What’s an Income Investment?

In principle, I suppose, you could say that bank deposits and premium bonds and national savings count

Let’s not try and insist that income investing is an obvious choice all the way through

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as zero-risk income strategies - although only one of those can make you rich. And there are always those guaranteed equity bonds that promise to safeguard your capital against calamity as long as you’ve read the small print properly.

But what we’re mainly talking about here is the more mainstream practice of using some sort of risk investment – a fund, a high-yielding blue chip share or a bond fund - with which to combine a reasonably predictable yield with an additional hope of a capital gain.

If we get the capital gain, then we have an excellent chance of beating anything that national savings or a bank deposit is likely to give us. And if we don’t – well, we’ve done our best, and that’s a large part of the underlying psychology, is it not?

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October 2014

the student No, you’re right, Shakespeare never wrote much about student life. Fat magistrates and bawdy alehouses were more his sort of territory. But then, a few new stages of life have entered the picture since the Bard’s day.

One of them is that college study is pretty well compulsory for kids who want to make good careers. But it’s still diabolically expensive. The students of Shakespeare’s era had rich dads and gambling debts; today, however, they have student loans that can run to £35,000 by the time they’ve got their degrees. And that’s not counting the cost of the gap year in Peru, or the car that they can hardly survive without. Being a student takes a bit of planning for.

Last month we talked about the importance of using junior ISAs, child trust funds and other ways of getting parental money into place ahead of the event.

And, as we agreed, the majority of this money will usually have been invested by the family and then left untouched, because most parents are too busy or too unfamiliar with investing to do it in any particularly hands-on way.

Equally, although every case is different, it doesn’t take a lot of thought to appreciate that students’ future financial interests are probably

better placed in reducedrisk investments where the pain of potential loss won’t be quite so personally felt.

What works in this interim situation? Possibly a blend between a higher-yield equity income fund and a bond fund.

Then again, we’ve also been intrigued by some short-term high-yield bond funds, such as one we’ve seen from Wells Fargo which is producing a steadyish 4%-4.5% yield from a 150-strong portfolio of quality US corporate paper with average maturities of two years or so. By surfing the borderline between higher risk and short maturity, they say, capital risk can be reduced to a minimum; they haven’t had a default in 12 years.

There is, of course, the small complication that the cash in a junior ISA, a child trust fund or a blind trust is very likely to have been transferred into the student’s eager hands at age 18.

It’s a good moment for parents to teach him, or her, a little financial planning. And then cross their fingers. And hope...

studen And then the student, on learned erudition bent

With solemn morning mien and pot noodle belly

And chirping smartphone bearing text and twitter feed…

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October 2014

INCOME INVESTING

the lover Shakespeare is back on message here, thank goodness.

The path of true love doesn’t lead to the altar so often these days – which is almost a good thing, since the average wedding costs nearly £25,000 – but there’s (almost!) nothing quite so guaranteed to turn a girl’s head as the thought that her partner shows signs of being capable with money.

(And, I’ll add hurriedly, he’ll be likewise reassured if she’s similarly savvy.)

Couples never run out of things to spend money on.

Whether it’s romantic holidays or car repairs or having the

latest iPhone, it will all take precedence over saving for the future. Which is one of the reasons why so few people begin saving before age 30, unless of course they’ve been strongarmed into starting a pension.

With the one exception of saving for a house purchase, of course. Getting a deposit together is one long, tedious struggle without the added complication of capital risk.

That’s one very good reason for playing it relatively safe with a well-judged income investment, rather than an all-or-nothing lunge at the latest social media IPO.

lover

But, apart from that, if there’s one time in a person’s life when longterm equity investment risk becomes palatable, it’s when they’re earning but have no commitments. These are the periods where a carefullyselected but ‘adventurous’ fund might suit.

Such as? A higher-yielding bond fund that may provide total annual returns of 7-10% or more in the medium term from sub-investment grade corporate bonds. A strategic bond fund that’s able to use leverage, although usually only for the purpose of hedging.

(Even the median performers here have been making 7% a year recently.) Or any number of income funds that promise high returns from emerging markets or recovery situations. As long as they’ve been structured so as to return most of the gains as income, there’s plenty of choice.

And then the lover, sighing like furnace, with a woeful ballad made to his mistress’ eyebrow.

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warrior October 2014

the mortgage warrior Whoops, it looks like Shakespeare’s gone off the point again. The swaggering swordsmen of Syracuse and Verona are worlds away from the hard-working family men whose cutting and thrusting is more likely to involve a brolly on the train, or perhaps a skirmish over promotion to the corner desk. Life might have been safer than in the Bard’s day, but it’s risky enough as it is - and it’s stressful too.

You won’t need any introducing to the mortgage warriors. From now until their late forties they’ll be raising kids, paying for schooling, trying to move to a better neighbourhood, and cursing the neighbours for having bought a flashier car.

They’ll be paying into a pension, but otherwise they aren’t finding saving as easy as it was five or ten years ago. The squeezed middle-age and middle-class are a real demographic phenomenon.

The point here is that the mortgage warriors don’t have money to burn. And, although the fortysomethings may be approaching their lifetime earnings peak, it won’t feel like that because it goes so fast.

They may be supporting other relatives - perhaps with care, perhaps with cash. They may be experiencing health hardships of their own. If possible, of course, we’d like to see them putting money away for their own children. And conversely, they may come into inheritances, which are another subject entirely. They’re more likely to be running a lot of insurance policies

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Then a soldier, full of strange oaths, and bearded like the pard…

An Extended Middle Age? And then there’s the question of portfolio balance. Ten years ago we’d have said that a 50 year old man was getting within sight of his eventual retirement, and that he should start shifting his assets away from equities and into fixed interest. (1% of your portfolio in bonds for every year of your life used to be a sort of watchword.)

But it’s questionable whether all that could be said to apply any more?

For one thing, bonds are now pricey enough to be regarded as a bit of a capital risk in their own right – and, for another, he’s likely to be retiring five years later than his antecedents, so the ‘risk clock’ has been put back by a couple of hours.

The structure of an income portfolio for him has changed just as much as the reason for doing it in the first place.

So should a 50 year old be taking more risks than his old dad? Actually, with 16-18 years to his probable retirement, and with bonds the way they are, there might be a good case for it.

Hey, it’s the way of the world. And look, he’s probably got a pile of ripped denims and a cherished stack of Sex Pistols discs to prove it...

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16/10/2014 12:53

GUEST INSIGHT

October 2014

Double Act Neil Martin talks to Audrey Ryan and Iain Buckle, joint Lead Managers of the Kames Ethical Cautious Managed Fund

You’d think that setting out your stall as both an ethical and a cautious fund would put quite a bit of pressure on your fund management style. I mean, how many times have we heard of some investment that is lauded as ethical, only for somebody to discover some dark secret lurking in the depths? One thing’s for sure, there are always plenty of people out there making sure you do as it says on the box.

But for Audrey Ryan and Iain Buckle, the joint lead fund managers of the Kames Ethical Cautious Managed Fund - this part of their job is perhaps the easiest. The fund, which was launched in March 2007 and is valued at around £220m, has outperformed the median over the last five years and has also won the best fund award in the Mixed Asset Category at the Investment Adviser 100 Club awards. A lot of that has to do with their strict adherence to sound principles – both ethical and commercial.

Audrey Ryan and Iain Buckle, are the joint lead fund managers of the Kames Ethical Cautious Managed Fund, launched in March 2007 and valued at £220m

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GUEST INSIGHT

Properly Independent

Ethical Principles

The responsibility of ensuring that their fund contains no surprises is down to the firm’s Screening Process and Screening Criteria. This involves our ethical research team which comes up with what Buckle describes as their “investable universe.” As he explains: “So they take the criteria, they do the analysis on the companies as to what is and isn’t suitable, and then Audrey and I have the job of constructing the best portfolio we can.”

Buckle and Ryan both stress that adhering to ethical principles is important both for them and for Kames. “We take our reputation in this sector very seriously,” says Buckle. “What you tend to find from an end investor is you get some very high conviction ethical investors - our main ethical researchers describe them almost as a kind of sector policeman.

“I think it’s very important that that relationship is at an arm’s length. There’s no ability for Audrey and me to exert pressure, or to influence a decision on whether something is ethical or not. It’s important that we understand why something doesn’t meet the criteria, or does.”

This means that the two managers can focus on what’s important - stock selection, keeping the right balance between equities, cash and bonds, and ensuring a good performance. The fund is spread across equities (where up to 60% can be invested); in investment-grade (lower risk) bonds issued by UK companies; in government bonds; and in high yield (higher risk) bonds.

Ryan and Buckle prefer to keep largely to their speciality areas - equities and bonds respectively – and they aim to deliver long term capital growth and income, and do so by not investing in companies which harm people, society, animals, or the environment.

“So there are some very well-respected ethical IFAs and ethical wealth managers who pore all over portfolios like this to make sure there is nothing that is going to be a surprise to them. In this kind of sector

if you make a mistake and you invest in something you shouldn’t have done, then people are very slow to forgive you.”

However, I asked, there must surely be times when the fund finds itself holding a stock it’s not happy with? Yes, Buckle admits: “It can happen through things like M&A, when you can get companies which previously met the criteria but which now don’t.

“The example I always use is the banking area, both in equity and in fixed income.

Banks which generally meet our criteria are classic retail banking institutions, that take deposits and lend them out as mortgages. But once you start getting off into corporate banking and investment banking, it starts becoming more difficult. One of the ones we previously could invest in was HBOS. But when HBOS merged with Lloyds back in 2008/9, that combined entity wasn’t one we were comfortable investing in.”

Heavy on Equities?

Running a fund which claims to be both ethical and cautious has more issues than most, but Ryan and Buckle approach the challenge with a sense of purpose and professionalism and not too many

The managers insist that they want the fund to be a straightforward product. I was asking Buckle whether he considered it strange, as some observers had suggested, that for a cautious fund, they could be up to 60% invested in equities, which could be volatile.

“I’d certainly say that compared to some funds in the sector, we’re a bit heavier on equities,” he agreed. “But then, it’s always been a simple product. What we are

disagreements...

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October 2014

trying to have is a one-stop solution for ethical investors.

There are a number of ethical corporate bond funds out there, but until we launched the fund it was a case of marrying the equity and bond elements together, whereas this to me fits within the remit of a traditional balanced fund.

At the halfway stage in 2014 the fund was 51% invested in equities, having reached a high of 58% back in September 2009.

Smaller Companies and Liquidity Maintaining strict ethical criteria can also mean that the management team often has to dip into smaller and mid-sized stocks to keep their principles intact. Does that present the fund with worries over a company’s liquidity?

“I wouldn’t say worries,” says Ryan.

“On the UK team we have 11 fund managers who are managing quite a bit of money, and as part of our investment decision on any stock, particularly if it’s small or mid-cap, we would consider as part of our process the liquidity within that stock.

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“We have a centralised dealing team of six individuals, and they help us with understanding and providing information of volumes etc. If it was a very strong investment idea, then we have to think about what percentage of the company is suitable to own, because at some point we would be wanting to sell the position, so again that is an important discussion point we have around the stock recommendation process.”

Allocations: No Falling Out I can’t help asking if they ever fall out about the selection of investments?

Ryan is insistent that there are no rows: “The key thing for Iain and me is to sit down and discuss asset allocation.

“What we do is take some leads from our house view. Kames Capital as a whole will have a view on equities, fixed income, property and cash. So we’ll take that view and we’ll sit down and discuss the appropriateness of it within our portfolio. So most of the time we will first reflect what we are doing as a house and then discuss what that means in terms of percentage allocations for our portfolio.

We discuss, and I guess we talk every day, but we’ve never had any major fights that I can recall, Iain, can you?”

Buckle agrees, but adds: “I do take a keen interest in some of the stocks Audrey invests in.”

It’s clear that running a fund which claims to be both ethical and cautious has more issues than many other funds, but it’s good to see that Ryan and Buckle approach the challenge with a sense of purpose and professionalism.

And not too many disagreements.

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INSIDE TRACK

October 2014

No More Mr Sales Guy Simon Hillenbrand, Head of Retail at Henderson Global Investors, tells Neil Martin that the adviser contact job has changed

It’s tempting, when thinking about the impact of RDR, to focus our attention solely on the dramatic changes that the new regime has brought about for IFAs. But we shouldn’t forget that the investment houses themselves have had to cope with exactly the same seismic shifts.

So it was good to meet with Simon Hillenbrand, Head of Retail at Henderson Global Investors, for some valuable insights into how the postRDR situation looks from the point of view of one of the UK’s largest investment houses. And conversely, how he sees advisers changing the ways they view the investment houses themselves.

A Longer Process Hillenbrand feels that, with less than two years under our belts since RDR was introduced, we are still in the very early stages of a continually developing situation. “I think if we go back two years,” he says, “obviously at that time we had RDR approaching at pace, and we found that

“Post RDR, in summary, I see a lot of IFAs who’ve obviously re-thought and reinvented themselves, they’ve always been good at that. They clearly want different things from the fund management groups”

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October 2014

certainly lots of people thought they were ready to get going, when maybe they weren’t.”

“There was that strange period at the end of 2012, remember, when everyone was getting into shape - especially getting their exams sorted out - and we were all waiting to see what RDR was going to look like and what RDR was going to mean to people? Well, two years on we’re still at a really early stage it feels to me.”

The Challenge from Passives For Henderson, RDR has meant having to change the way that the investment house deals with IFAs: “I think it’s fair to say that fund management groups like ourselves have to fight a lot harder for market share. Because it’s a lot more competitive now” “One of the things we picked up on quite early in the process was the phenomenon of product substitution when product portfolios were being built by IFAs. Product

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substitution meant that a lot more passive product was coming into the portfolios, with the result that the active funds which we manufacture and distribute became a much smaller part of portfolios.”

“Post RDR, in summary, I see a lot of IFAs who’ve obviously re-thought and reinvented themselves, they’ve always been good at that. They clearly want different things from the fund management groups.”

“When IFAs work with us now, a lot of them want to hear more than just how our European Equity fund is doing - they really want to know more about the European market.

That’s because some of them are a lot more technical now. Those who took their exams and are now starting to focus heavily on investments are much more interested in what we can add to their process, rather than just wanting us to come and talk to them about funds.”

Advisers Rethinking Their Models Another challenge has come from the changed way that advisers create their models, he says. “The way that advisers have had to segment their client bases to build their new models, post-RDR, has allowed them to think about what they need from fund management groups - including wanting solutions.”

“We worked on that idea early on in the process, and we decided to offer a multi-asset range. But it might turn out that they don’t actually want to do investments at all, but to give it all to discretionary managers instead. Which means that, if you are us, you need to be working very closely with the discretionary managers themselves to ensure that our funds get onto those buy lists.”

Changing The Pitch Hillenbrand says that one of the biggest changes is having to be very receptive to the needs of IFAs. Rather than just turning up at their offices and

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October 2014

INSIDE TRACK

running through the funds, Henderson’s people now have to build close relationships and become part of the process.

and so forth. But since RDR a lot of them have had to think, well, do I really want to do investment business any more?”

RDR produced quite a number of unintended consequences, and I still think some of those are still to play out.”

“How we work with these guys now is about consultation.

We talk to them about what sort of product they need from us, as opposed to just turning up in their offices with a new fund. That old style doesn’t really cut the mustard any more, because they want to talk about what we can do for them.”

“It’s not quite as clearly defined as it used to be. There are different touch points within single IFA firms now, and that has been quite an interesting development.”

“We are obviously more heavily regulated now, which is not unexpected, given the experience everyone has had over the last few years. That is a challenge for everybody, but it is something that arguably needs to happen in order for the industry to regain the trust of the public. At least we are heading in the right direction.”

Asked if he considers IFAs more professional in their outlook than some years ago, he answers carefully.

“I think they’ve had to focus on what they’re good at.

Generalist IFAs are perhaps fewer on the ground.”

“In the old days it was more straightforward. PreRDR, you’d have a situation where an IFA would just do all investment business, all pensions business, all protection business, all mortgage business,

It’s also possible that Henderson funds will feature in two or three different contexts.

If they’ve referred some of their some of their clients to DFMs, then there may be Henderson Fixed Income, or European fund in the client portfolios.

There may be other clients of that IFA who hold multimanager funds for example - perhaps the small clients.”

More Changes To Come As for the future, Hillenbrand believes that there is much more change to come. “While we’re not quite two years into life post RDR, I still think

“What I do know that, from our point of view, we have to absolutely focus on the basics - providing great performance and setting out our stall as a provider of active funds. So, while we have to outperform, we are also spending a lot of time thinking about and executing on our service proposition.”

Re-Branding As evidence of Henderson’s new approach, Hillenbrand points to

So when you’re next on a Cornish beach and a man runs past with his board searching for the next ‘Macker’, it may just be Hillenbrand , clearing his mind before next thinking about how he can improve Henderson’s offering to the IFA community

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a company rebranding; a new website; and generally putting their fund managers out there, allowing people to follow their progress and thoughts. It’s about providing quality content for all their customers, he says.

He concludes that although this might be a demanding time for houses like Henderson, therein lies the opportunity: “It’s about talking to IFAs, making sure we’re providing what they need, rather than trying to second guess, and build product that isn’t needed, or isn’t used. All in all, I think it’s a really exciting period for fund management houses who have a broad stable of capabilities.”

Hillenbrand started his career in property and qualified as a chartered surveyor in 1992 - perhaps, as he admits, not at the best of times. “It was pretty much in the teeth of a very severe bear market for pretty much everything. And I took a view that I didn’t really want

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to do that for the rest of my life, and so I took a bit of time out.”

He made his break in the City whilst temping at Morgan Grenfell, and soon found himself in a permanent position. He was there for six years, ending up at Sales Manager for the South West, a large territory which included the Channel Isles. He moved to Invesco Perpetual in 2000, and by 2002 he had left to join New Star.

“New Star was all very exciting and very young, and going places, and that was great fun. In 2007 I was made the managing director of UK retail sales, which was a post I held until 2009 when we were bought by Henderson.

I’ve worked here since then.”

Surf’s Up So what does Mr Hillenbrand like to do in his spare time? (if he has any, of course?). Now, I’ll admit that the answer came as some surprise. He

spends every spare minute on the beach, he says, grinding out the waves on his favourite Cornish surfing spots.

Given the demands of his job, of course, and the demands of his young family, his surfing opportunities are relatively limited. And yes, he admits, “I am nothing like the guys you’ll see in surf films. I can stand up at least! And if it’s quite big, and I’m lucky, I can get those waves. It’s very good for emptying your head, because obviously you have to be in the moment. The sea is a very serious place, you can’t afford to think about many other things when you’re surfing.”

So when you’re next on a Cornish beach and a man runs past with his board searching for the next ‘Macker’, it may just be Hillenbrand, clearing his mind before next thinking about how he can improve Henderson’s offering to the IFA community.

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October 2014

STEVE BEE

The Rime of the Ancient Pensioner Steve Bee relates a fearful tale of piracy, loss and despair from the frozen Cape of Dead Hope

It is an ancient pensioner, And who saved in S2P. Was years in Serps and graduated, Aye, But ne’er a GMP. A consultant’s time comes at a prime Cost, and that’s so dear; But in he’d come to state his name And make his point most clear.

The Age of Eldorado ‘The boardroom’s coffers once opened wide, We were contracted-out; The monies met, the funding set: Gold-platedness devout.’

He holds him with his skinny hand, ‘That was the time,’ quoth he.

‘Hold off! unhand me, I care not now For what they did in ’63!’

He holds him with his glittering eye— The consultant young stands still, And listens like a three years’ child: The pensioner hath his will.

The consultant young sits like stone: He cannot choose but hear; And thus speaks on that ancient man, The bright-eyed pensioner.

‘The scheme was launched, the profits staunched, Our NI conts were dropped Below the rate paid of late By those whose schemes were topped!’

‘The sun shone then on all the men, And women too who’d join.

That band of old with pensions gold Guaranteed their future coin!’

‘The investments surged, the past was purged On a sea of equity.

The future bright look’d right Or so it seemed to me.’

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October 2014

‘Higher and higher every day, Till the FTSE peaked at noon.’

The consultant young fair bites his tongue, For he hears the loud bassoon.

The Curse of the Albatross The pensioner paces round the room, A pitiful sight is he; ‘To bust from boom, that was our doom.

And we got a GPP.’ The consultant young looks fit to run, Yet he cannot choose but hear; And thus speaks on that ancient man, The bright-eyed pensioner.

‘Recession he came ere time, and he With quantitative-like frown: Struck and struck with his easing cuts, And chased the rates right down.’

‘With falling rates and dipping yields, No alpha yet set to pursue.

The markets seized, the sinews freez’d Aye, and nothing any could do.’

‘And now there came another game; When pensions start anew.

As into the fold, the auto-enrolled, Joined our ancient crew.’

And sudden did come that thunderous day Through budget unsuspected so; And in a blink the annuity link, That ne’er we thought would go.’

‘But go it did, and so it seemed The yoke of ages too.

And we lost then the fear of men, But stood and what to do?’

The Phoenix Launches The consultant young now finds his tongue His modern world is clear.

But the pensioner’s mind, looked from behind, Two eyes so full of fear.

‘God save thee, ancient pensioner!

From the fiends, that make thee shot!— Why look’st thou not good?’— ’As soon as I could I cashed my pension pot!’

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For further information please contact Nicola Johnston at nicolajohnston@chfmedia.co.uk or 0845 512 1000 Please visit the website at www.chfenterprises.co.uk for more CHF’s new information

Steve Bee.indd 42

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SEMINAR

October 2014

The EIS Imperative The IFA Magazine Seminar on Enterprise Investment Schemes

We probably don’t need to explain why the last twelve months have seen such an enormous growth in interest in EIS and VCT schemes – a large part of it driven, of course, by the recent reduction of the lifetime pension contribution cap from £1.5 million to £1.25 million. But in fact there’s actually quite a lot more going on at the moment than simply deflecting wealthy savers’ money from away from pensions and into other tax-efficient vehicles.

EIS itself is branching out in new directions, with its appeal extending increasingly to middle-earners who might not previously have been attracted to the idea. Seed Enterprise Investment Schemes (SEIS), originally launched in 2012, have been growing at an exponential rate as the idea of small-company start-up finance has spread – thanks, not least, to the growth of crowdfunding and to TV programmes like Dragons’ Den which have raised popular awareness of the funding issues.

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For today ’s discerning financial and investment professional

Save the Date It’s all new, and it’s developing fast.

This year’s spring budget also produced an EIS-like regime known as Social Investment Tax Relief (SITR), which provides very similar tax incentives to savers who fund so-called social enterprises (community interest companies, community benefit societies or charities), under very much the same sort of qualifying conditions.

The Tax Advantages As you’d expect, the tax shelters from EIS and SEIS schemes are not precisely identical to those that higher and top-rate taxpayers have been enjoying in respect to their pension schemes.

But for many, the alternative advantages of instantly recouping an upfront 30% tax rebate on EIS investments of up to £1 million in any one tax year have proved equally attractive.

• Funds invested in eligible EIS schemes enjoy 100% exemption from capital gains tax (normally 28%), as long as they are held for at least three years. They are a useful repository for the receipts from any kind of asset disposal, allowing the bearer to defer CGT on any such gains for the life of the investment.

That’s why we’re inviting IFA Magazine readers to a one-day London seminar on Thursday, 27 November.

All the big EIS issues will be explained and explored by a panel of experts including: Sarah Wadham, Director General of the EIS Association and speakers from Britain’s premier EIS and VCT providers.

The event is free of charge to attendees, and it is of course CPD accredited.

Refreshments will be served.

Places are limited, so please email events@ifamagazine. com to find out more and to secure your place.

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SEMINAR

October 2014

• Even capital losses on an EIS investment can be offset against income in the year that the loss arises, or in the previous tax year. For a top rate taxpayer the benefit equates to 35% of the EIS shares’ value – meaning that investor has a downside loss protection of 65 pence in the pound by the time income tax relief has been factored in.

SEIS

• And finally, investments in EIS-compliant shares are capable of attracting IHT business property relief (BPR) to the value of the original investment, upon being gifted or upon death.

However, the annual investment limit is set lower for such investors - £100,000 for individuals and a cumulative £150,000 for companies, subject to certain other restrictions.

The growing interest in the Seed Enterprise Investment Scheme (SEIS), launched in 2012, which focuses mainly on smaller early-stage companies and which offers an enhanced 50% income tax relief for individuals who invest in shareholdings of up to 30% of such companies.

(As distinct from the 30% relief available to EIS investors.)

SITR As we’ve said, the 30% income tax reliefs resemble those of the existing EIS and they share many of the same, sometimes complex, conditions. The maximum investment is set at £1 million, and the investor

Maximum investment per individual

SITR SEIS EIS £1million £100,000 £1million

Income tax relief

30% 50% 30%

Capital gains tax free?

Yes Yes Yes

CGT deferral?

Yes No Yes

CGT relief?

No

50% No

Minimum holding period

3 years

3 years

Maximum per investee entity

€344,827 £150,000 (c£285,000) over 3 years

£5 million in any 12 months

Can apply Highest to debt rate of instruments relief and as well as CGT shares holiday

Highest investment limit

Unique benefit

Source: Baker Tilly

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3 years

cannot own more than 30% of the recipient social enterprise; he cannot be an employee or paid director; and he must own the investment for at least 3 years to qualify.

Qualifying Conditions are Tightening We won’t duck this one. Yes, there’s no point in denying that HMRC are getting tougher on the way that EIS schemes are policed. Or rather, about the way that the decisions on tax relief eligibility are made, often retrospectively. In most cases, however, the rulings are simply common sense, and it’s unlikely that an ordinary investor would ever come to grief unless he was knowingly pushing his luck.

• You’ll have heard, of course, about the measures being taken against certain EIS schemes that appear to have been specifically set up so as to recoup the 30% relief and then fold.

• The majority of these schemes so far have been in the Film EIS sector, where some 800 schemes are currently under HMRC’s probing lens; but the re-examination for eligibility might spread more widely in time.

• In April, Chancellor George Osborne effectively disallowed EIS schemes from benefiting from so-called renewables obligation certificates, which are state subsidies for renewable energy. The detriment to renewable energy EIS schemes since then has been estimated at £370 million, although nobody is completely sure yet.

What’s the worst that can happen? In practice, most of the EIS schemes that are being disallowed will result in nothing more than a demand for the return of the tax relief that has already been claimed.

But for the latest word, be sure to come along on 27 November. We look forward to seeing you.

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B R I A N TO R A

October 2014

An Autumnal Chill Brian Tora says there’s enough reason for investors to be feeling twitchy at the moment

As the nights started to lengthen and autumn began to exert its cooling influence on our weather, so the markets cooled too - weighed down by the gathering risks generated by geo-political conflicts.

In some regards, it is remarkable this didn’t happen sooner. When the Footsie was flirting a few weeks ago with its previous all-time high (back in 1999, no less), Islamic State was already garnering headlines and tanks were rolling in Ukraine.

Uncertainty on All Sides Both these trouble spots have the ability to blow off-course the economic recovery that has been building over recent

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years. And as if to make matters worse, they have now been joined by a new pressure point – Hong Kong. Little wonder that the European Central Bank has embarked on its own form of quantitative easing, announcing an asset purchase programme that is likely to extend into the next few years and expand massively the central bank’s balance sheet.

At the beginning of October, our own headline index – the FTSE 100 Share – hit the lowest point so far for 2014. Those highs of high summer seemed a long time ago. But are investors right to be so spooked by the possible outcomes in those areas of tension and outright conflict?

The answer is – probably.

Bears Prowling Take Ukraine. With the ceasefire barely holding, the European Union is maintaining its tough stance on sanctions. While Russia must be hurting, it won’t be doing the fragile economic recovery in the Eurozone much good. Indeed, recent statistics suggest that growth in the core countries of Germany and France has stalled once again. And, while some of the peripheral nations appear to be improving, that in itself won’t be sufficient to head off a downturn.

As for Russia itself, the economy was hardly in a robust state even before the

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J

October 2014

costly incursions on the ground and a tightening band of sanctions made matters worse.

Russia isn’t like Western nations. Communism may have been thrust aside, but there is no real democratic culture alive in the motherland.

Indeed, President Putin’s stance appears to have popular support, so heaven knows where the end game will lead.

Meanwhile, Ukraine’s economy is reported to have shrunk by 8%, showing that not all the casualties of this unfortunate conflict are from military action.

It is unlikely that Russia really wishes to annexe even eastern Ukraine, given the costs this would impose on the state, but Moscow clearly will not tolerate a nation with close links to the EU and a possible member of NATO on its border. There is no easy solution to this crisis.

The Middle East Nor is there a clear exit strategy for Western involvement in the seemingly intractable war taking place in the Middle East. Sunni and Shia Muslims have been at each other’s throats for centuries; indeed, the divide in this religion is even deeper than that between Christians who look to Rome for leadership and those with Protestant leanings.

Trying to reintroduce stability is leading to some very strange bedfellows in the anti-IS camp. We all have to hope the conflict does not widen further.

The Meaning For Equities?

Does this mean that investors should eschew risk assets, like equities, for the time being?

With so much uncertainty about, it is hard to see major markets making much headway - while emerging markets are also beset with their own pile of problems.

But it is at times like this that opportunities are thrown up. With US tax laws threatening to choke off the recent wave of merger and acquisition activity and our supermarket industry in seeming disarray, we certainly live in interesting times right now.

As it happens, a colleague of mine suggested that, based on technical analysis, the Footsie was due a pull-back from the then 6700-6800 level that it had achieved earlier this year. As a new all-time high looked possible (though it was never reached), it seemed he had got it wrong. Recent market behaviour is making his assertion look more credible.

Remember, though, that the further we fall, the better the chance of a recovery.

Despite current uncertainties, in the long term equities should be the place to be.

An individual approach At JM Finn & Co, we understand the importance of treating you and your client as an individual. This is why our Tailored Platform Solution is a discretionary service that can integrate seamlessly into your proposition.

Mike Mount T 02920 558800 E mike.mount@jmfinn.com

www.jmfinn.com LONDON BRISTOL

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JM Finn & Co is a trading name of J. M. Finn & Co. Ltd which is registered in England with number 05772581.

Registered Office: 4 Coleman Street, London EC2R 5TA. Authorised and regulated by the Financial Conduct Authority.

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BURNING ISSUES

October 2014

Bonds: Is the Party Over?

Our Burning Issues series continues with a look at the prospects for fixed interest.

You can’t have missed the final curtain calls for corporate and government bonds in recent months.

Overpriced, overbought, and soon to fall victim to deliberately-induced rises in interest rates and consumer prices as the spectre of deflation stalks

the Western world. Who’d be a bond buyer now?

Well, quite a few of our expert panel would, it seems.

Never the sort to follow the herd blindly, they have some interesting thoughts to offer on how we should differentiate between different offerings.

Meet the Panel Chris Hiorns

Fund Manager at Ecclesiastical Investment Management

Alan Wilde

Head of Fixed Income (Global) and Ece Ugurtas Head of Fixed Income (Specialist) at Barings

Tom Elliott

International Investment Strategist at deVere Group

Dawn Kendall

Senior Bond Strategist at Investec Wealth & Investment

Adrian Hull

Fixed Income Product Specialist at Kames Capital

Michael Stanes

Investment Director at Heartwood Investment Management

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October 2014

Question 1: Hesitant equity markets have seen yields on major government benchmark bonds generally tightening during the last 18 months. But the last month has seen erratic behaviour from both gilts and treasuries. Is this due to political instability, or to insecurity in equity markets, or to some more fundamental reason?

remains fairly robust, and the Bank of England continues to signal that investors should expect a rate rise in the near future. To the extent that the fall in the gilt yields has been driven by investor ‘risk aversion’ and a flight to quality, one would normally expect to see gilt yields move up as geopolitical events such as Ukraine subside.

But the UK does not exist in a vacuum, and we are likely to import deflation from the Eurozone. Both growth and inflation in the Eurozone are coming below expectations, and pressure for the ECB to engage in meaningful QE is intense. In this environment ten year bond yields have fallen to record lows of only 90bps.

This means that whilst UK gilt yields may have fallen sharply over the last couple of months the spread between gilt and bunds is now wider than it has been in more than a decade.

Dawn Kendall There have been a number of reasons for the heightened volatility in the bond markets since July. Peripheral Europe was impacted by the issues of governance at Espirito Santo in Portugal, but essentially this is a local affair. Phones 4 U bond holders were confronted with the grim truth regarding leveraged debt positions created to pay down Private Equity investors. We now face the end of QE in the US. And finally, the departure of Bill Gross from the world’s largest bond manager, PIMCO.

Alan Wilde Chris Hiorns There are various reasons for the fall in government bond yields over the past couple of months. Geopolitical instability (particularly Ukraine), slowdown in growth expectations, particularly in Europe, and inflation figures consistently coming in below expectations. UK growth

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Bond yields rose sharply following the “taper tantrum” in May 2013 but have remained relatively stable for the last 12 months. German bunds have recently touched their low yields again below 1%. While peripheral European bond spreads (to bunds) are tighter than before the financial crisis.

EM Debt and High Yield credit. Indeed, until recently, measures of volatility have been at record lows - suggesting markets have become if anything, a little complacent.

Michael Stanes Greater confidence in the US economic recovery has shifted the market’s perceptions of Federal Reserve interest rates.

US growth rebounded in the second quarter with signs that the recovery is broadening.

Tapering of quantitative easing likely to end in October and the next stage of the Fed tightening cycle is likely to be the implementation of the first rate hike. Central banks will adjust policy very slowly, but the risks are increasing that the Fed moves before the Bank of England.

Tom Elliott A combination of the end of QE, weak global growth data of late, stretched valuation in some IT stocks (eg the Rocket IPO), and now fears that redemptions out of PIMCO’s Total Return Fund could lead to forced selling in some illiquid FI markets, are all reasons for market nervousness.

Adrian Hull Without wishing to sound anodyne, it is partly all of the above. Certainly, there was relief in £ markets that the Scottish referendum was emphatically a “no” – but there continues to be global uncertainty. The Middle East and Ukraine worry investors but more immediately lower commodity prices are pushing for a stronger $ and inflation and wage growth remains muted in the US – and the UK. And it seems that the US is more “taper” comfortable than it was in 2013 and the fact that 5y yields are unchanged in the US year to date bears this out.

Risk assets have also performed well – equities;

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October 2014

Question 2: High yield and emerging market paper have held up noticeably well in the last year, as investors have sought refuge from poor cash rates on their savings. Can the trend hold if interest rates should rise, as they almost certainly will?

Ece Ugurtas Within global high yield, the combination of sound fundamentals, manageable leverage and upcoming maturity profiles, an attractive risk premium over US Treasuries especially following the recent market weakness, as well as low default rates should all provide a degree of cushioning as unconventional monetary policy is withdrawn.

The US monetary outlook will continue to affect emerging

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BURNING ISSUES

market bonds and currencies, and we cannot rule out further weakness in the short term. We are selective in our exposure to emerging markets, preferring countries with strong fundamentals such as Mexico, where we also have supportive structural reform. Valuations within emerging market debt remain attractive compared to developed bond markets and there are some interesting opportunities for currency appreciation. We believe that any weakness caused by the uncertainty in the US monetary outlook is likely to be short lived.

scope for further tightening in credit spreads which are already at their lowest level since the credit crisis, but with most corporate balance sheets relatively strong, issuance levels relatively low and demand strong, I can’t see that spreads will widen much in the short term.

Adrian Hull

Dawn Kendall

It is not that rates can go up but the speed with which they increase that is likely to

The UK corporate bond market is seen as ‘cheap’ relative to Europe, which is why more and more issuance is going on in Euros and dollars rather than sterling. So that is going to drive downward pressure on spreads as well.

High Yield was looking very fully valued at the beginning of the summer, but with yields now at 6.20% that is ample compensation for the amount of risk we are taking on sub 2% default rates.

Michael Stanes

undermine confidence-- and market expectations are still that rates will remain at historically lower levels for a while to come yet. There has been some nervousness in HY in September but the back up in yields has cheapened US HY bonds by more than 100bps since June – so we still think that the carry dynamic will remain strong.

Chris Hiorns In terms of corporate bonds, whilst there seems little

Both asset classes might be vulnerable to investor outflows.

That said, relative to other fixed income sectors, high yield bonds tend to perform better in a stronger economy. Companies have also refinanced debt, which is maintaining a low default rate. Emerging market debt (US dollar-denominated) is underpinned by a larger institutional-investor base where flows are likely to be more stable. Fundamentally, many countries have reduced their external debt burdens and are better protected in a rising US treasury environment.

Tom Elliott Unlikely, given the widespread fear of lack of liquidity in the credit marketplace.

Alan Wilde For many pension funds, bonds will remain the asset class of choice as the funding risks to meet future liabilities are no longer deemed acceptable

by CFOs and Boards.

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October 2014

Question 3: There are still many investors who need the security of fixed interest but who worry about the capital implications of rising yields.

How can an advisor best resolve these conflicting factors?

Chris Hiorns If you are nervous of rising yields, naturally you want to shorten the duration of your fixed interest portfolio – and, with gilt yields this low and corporate credit spreads this tight, that makes some sense. But you will lose a lot in yield if you shorten the duration too much - and whilst I am slightly shortening the duration of my fixed interest portfolios and increasing liquidity, I am still maintaining exposure across the curve- especially when I feel I can get a reasonably large pick up in yield from what I consider to be a good credit.

And I would not just want to rely on fixed interest investments

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Adrian Hull It may be that a peer rather than a benchmark mandate is better suited and funds that are proactive in asset allocation work better – strategic bonds funds may make more sense where you can proactively manage risk.

For those that are really concerned about higher rates, absolute return products work well. for security. You can buy a basket of high quality ‘blue chip’ equities offering more attractive yields than the bond market. So I would want some exposure there as well.

Alan Wilde Well, the most obvious form of protection from higher yields would be to hedge the interest rate risk and just run with credit risk (of the underlying borrower).

But in a low yield environment that is not going to generate very high returns and may still result in capital erosion. The wider the Fixed Income universe, the more likely that a resourceful manager can find combinations of bonds across credit quality, region and currency that enhance returns.

A Strategic Bond Fund for example, can derive alpha from asset allocation decisions.

Now that major central banks are running desynchronised monetary policy, there will be great opportunities for this type of product to add value.

Tom Elliott There is always a role for fixed interest in a balanced portfolio, to help manage volatility. Short duration USD-denominated funds are probably the answer during the upward swing of the US rate cycle.

Dawn Kendall The answer is to focus on floating rate investments that give the best of both worlds.

Higher up the capital structure in terms of protection from bankruptcy over equities but also variable rate of interest to protect against rising yields.

These invests come with caveats, caps and floors may temper the direct relationship between rates and yield somewhat, but they do allow the client to flex the income higher as rates rise.

Michael Stanes Fixed income investors tend to maintain a short duration profile in a rising yield environment. However, selectively, investors might take advantage of steep yield curve opportunities in markets where rates are rising. That means overweighting intermediate- or longer-dated maturities relative to the front end of the curve.

Potentially, investors would be appropriately positioned to benefit from shorter rates moving higher relative to longer-dated maturities.

Outside of the government sector, higher quality investment-grade corporate bonds might also provide stable yield opportunities.

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October 2014

COMPLIANCE DOCTOR

Technically Speaking Lee Werrell, CEO of ComplianceConsultant.org, says advisers need to sharpen up their technology compliance

Getting Your Tech Into Line

Speech by Martin Wheatley, Chief Executive, the FCA, at Bloomberg, London May 2014

Almost imperceptibly, we sometimes fail to observe how rapidly the technological age continues to advance. As we investigate and probe with our Google Glasses and watch Facebook videos on our Samsung, HTC or iPhone 6s, technology clearly serves for making our chosen lifestyle more informed and potentially efficient but, by using it brings new challenges.

www.fca.org.uk/news/ making-innovation-work

The control over operational and conduct risk within financial advisory firms is still running dangerously slow, including many IT infrastructure and security checks that remain undone.

Simple things can be great tell-tales of your culture. Are your Google Glasses locked away in their cases? Are all your client files backed up in the event of a dreaded IT failure, server blow out or hacking?

“In financial technology specifically, global investment more than tripled over the five years to 2013 – up to $2.97bn. The UK and Ireland were the fastest growing incubators in the world here, developing at an annualized rate of some 74% since 2008 – set against 23% in Silicon Valley.”

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Where financial services firms are concerned, the importance and increased usage of financial technology has rightfully become more mainstream, as reliance on digital connectivity has increased.

This burgeoning adoption of the technological world means rapid, efficient, simple, and cheaper interactions with consumers, as well as providing the means for consumers themselves having the capacity to source products, advice and information with growing ease.

This welcome trend might make markets more efficient. It also enables new, more innovative entrants into the market, thus benefiting competition. But, while all of this comes across as very exciting and pioneering, how does it impact on you as a provider of these facilities?

How do you identify and sustain fairness, efficiency and ultimately compliance in the tech age?

The Regulator’s Perspective The FCA places substantial importance on firms’ IT systems assisting to deliver fair customer outcomes.

IT infrastructure is also on the list of seven forward-looking

areas of focus highlighted in the FCA’s 2014 Risk Outlook: “Financial firms and consumers are becoming increasingly reliant on technological systems and are more exposed to their disruptive capabilities (in the form of abuse, misunderstanding or operational challenges arising from the increased complexity of, and reliance on, these systems).”

Then again, let’s consider a speech by Martin Wheatley, the FCA’s CEO, at Lansons, London June 2014. “A key objective, as many will already know, is to make sure positive developments by which I mean the ones that genuinely promise to improve the lives of consumers or clients – are supported by the regulatory environment.”

The FCA issued a paper in July 2014 highlighting areas that firms should evaluate when outsourcing IT arrangements.

Although aimed at new bank start-ups, the overall message was emphasising that specifically: “a regulated firm should be clear that it retains full accountability for discharging all of its regulatory responsibilities. It cannot delegate any part of its responsibility to a third party.”

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October 2014

Trouble in ‘Techyland’

Key IT questions to ask

Any form of inefficiency in your firm’s IT infrastructure could have consequences for both your company as well as your customers. Technology failure or mis-management in your firm could result in poor customer outcomes, and as such then be a breach of conduct risk.

It is imperative for your firm to assess, understand and take action on the conduct and other risks that can crystallise through you having an inadequate or untested IT infrastructure. You may wish to consider the following questions to help you cover as many angles as possible:

“One of our aims was to put conduct in the board room – to ensure that firms put consumers and the integrity of the markets at the heart of their business. For too long, managing conduct risks has been seen as a function for compliance and not the responsibility of the business.

“There had been too little attention paid by senior management to the incentives they put in place for their staff, the culture that actually operated within the business and the outcomes that produced for consumers and the markets. That is changing.”

Tracey McDermott, Director of Enforcement and Financial Crime, the FCA, at the Thomson Reuters Compliance & Risk Summit, London July 2014 www.fca.org.uk/news/ speeches/sustainability

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• When did you last assess the IT infrastructure at your firm?

• How do you satisfy yourself that the IT infrastructure at your firm is robust?

• What emergency plans are in place if there is an IT incident at your firm?

• Where your firm has outsourced its IT arrangements to a third party, how do you satisfy yourself that the third party has sufficient skills, knowledge and expertise?

• How do you assess the performance of the third party, and how frequently do you do this?

Don’t forget, the regulator will want to see evidence of the answer to these questions, along with regular updates and reports to senior management on the status and performance of tests, checks and monitoring.

IT is central to all our working today, and if the systems, procedures and processes are flawed or misused, inefficient or ineffective, ultimately the consumer will pay.

As technology in the world in general develops, robust conduct risk management including your IT infrastructures, with evidence of relevant and pertinent regular reviews, clearly helps your firm commercially and demonstrates that you have the customers at the heart of your business.

“So what does this new world mean for the financial community — firms and regulators?

First, for firms it means encouraging a more consumer-centric approach to business.

Placing far more emphasis on the culture of the firm at every level and at every stage: from chief exec to frontline staff, from product design to sale.”

Martin Wheatley, chief executive of the UK FCA, “The Fairness Challenge” at Mansion House, London, October 2013 www.fca.org.uk/news/ the-fairness-challenge

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October 2014

COMPLIANCE DOCTOR

Policy Statement 14/13: Changes to Regulatory Reporting: Adviser Charging and Product Sales Data The FCA has published its Policy Statement on changes to reporting, specifically on adviser charging (Section K) and product sales data (http://tinyurl. com/oy5dk8j) Section K Based on the responses the FCA have received to the Consultation Paper CP14/5, they are introducing a number of changes: • Improving Handbook guidance on RMA-K by incorporating their previously published interim technical note; • Reducing the reporting frequency of RMA-K from six-monthly to annual; and • Allowing firms to report RMA-K on a cash or accruals basis.

In addition to the FCA’s initial proposals, the feedback received is suggesting that a breakdown of charges facilitated by providers and platforms was overly burdensome.

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Martin Wheatley, chief executive of the FCA

Firms will only be required to report a breakdown of adviser charges by those paid by client and those facilitated by a product or platform provider (one field).

These changes are enforced from 31 December 2014.

Product sales data (PSD) You don’t have to make oral representations if you think that your point of view can be adequately expressed in writing. But many firms have found it advantageous to meet the RDC in person to put across their case.

For details of how to manage your risks or any other regulatory issues, contact Compliance Consultant at info@complianceconsultant. org or your qualified compliance professional.

See also the listings of the latest FCA Publications on Page 56

Section L The FCA will be implementing their proposal to remove the requirement for firms to report detailed consultancy charging data.

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INVESTMENT DOCTOR

October 2014

Tail-Risk Hedging Deciding whether to insure multi-asset portfolios against extreme events may not be as simple as you think, says Nick Samouilhan, multi-asset manager at Aviva Investors

The huge losses incurred by many portfolios in 2007 and 2008, in the wake of the impact on markets of the financial crisis, called into question the broad range of portfolio management techniques used by fund managers.

The losses suffered by many multi-asset funds during that period raised further questions and a hunt for what could be learnt to prevent a repeat performance.

Tail Risks The experiences of 2007 and 2008 prompted many fund managers to question whether portfolios should have an explicit process to guard, or hedge, against extreme yet very unlikely negative scenarios. These events are known as “tail risks”, as the chance of the risks occurring is at the extremity (tail) of the distribution of possible outcomes. A more colourful term for tail risk is “black swan events”, in that nobody thought swans could be black until black swans were discovered.

Tail events, like the financial crisis, share

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three specific attributes.

The first is that they are incredibly rare, occurring so infrequently that they were never usually addressed as part of a standard process.

The second is that when they occur, what happens and the way it happens are completely unpredictable.

Lastly, while both rare and unpredictable, tail risks will have a considerably negative impact. In a portfolio context this implies large losses.

Following 2008, many fund managers began looking for ways to insulate portfolios against another tail event.

To meet this need, several investment banks developed so-called “tail-risk hedging products”, many of which are now being used in multiasset funds. While these products come in a range

Following 2008, many fund managers began looking for ways to insulate portfolios against another tail event. To meet this need, several investment banks developed so-called “tail-risk hedging products”

of different structures and varieties, three aspects are common to tail-risk hedging.

Tail-Risk Insurance: Common Features Tail-risk insurance, like other forms of insurance, costs money.

As such, a fund incorporating tail-risk insurance will likely underperform one without it over time. That is the price you pay for trying to remove the chance of rarely occurring events causing significant portfolio losses. Tail-risk insurance products hit potential performance in the absence of a tail-risk event. Think of having fire insurance. The insurance pays out when there is a fire, but costs money when there isn’t one.

The second common feature is the broad nature of tail-risk events means any hedging process needs to be similarly broad and consequently untargeted. This introduces two problems. The first is that the hedging process may not work when the tail risk occurs.

For instance, an exceptionally huge fall in equity markets (a tail risk) may not be offset by the tail-risk insurance product adopted. Secondly, the cost is relatively high, broad insurance being more expensive than targeted insurance. Insuring your car against fire and theft, for example, is cheaper than doing so to cover anything that could happen to it.

Finally, the unpredictability of tail risks means that by its very nature tail-risk hedging needs to be permanently in place to be effective. You cannot scale it up or down. Indeed, any view on whether markets look more or less risky than usual should feed into the tacticalasset-allocation process and not the tail-risk process.

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October 2014

F C A P U B L I C AT I O N S

FCA Publications

OUR MONTHLY SUMMARY OF THE LATEST OFFICIAL PUBLICATIONS Guidance on the FCA’s Registration Function under the Co-operative and Community Benefit Societies Act 2014 Consultation Paper Ref: CP14/22 2 October 2014 70 Pages This guidance consultation, which relates to the regulator’s approach to its role as registering authority for co-operative and community benefit societies, aims to explain societies’ obligations and legal processes, and is aimed at making the registration process more transparent.

Consultation period ends 28 November 2014 Guidance on the Financial Policy Committee’s Recommendation on Loan to Income Ratios in Mortgage Lending Finalised Guidance Ref: FG14/8 1 October 2014 13 Pages The Guidance relates to the June 2014 recommendation from the Financial Policy Committee (FPC) that the Prudential Regulation Authority (PRA) and the FCA should regulate the loan to income (LTI) ratio for residential mortgages.

In particular, that mortgage lenders should not be allowed to extend more than 15% of their total number of new residential mortgages at loan to income ratios at or greater than 4.5.

This recommendation applies to all lenders whose total residential mortgage lending exceeds £100 million per annum. The guidance sets out: n How the FCA and PRA expect firms to act

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in light of the FPC’s recommendation; n How they will determine which firms should apply the LTI limit; n How they will monitor a firm’s mortgage lending with regard to the LTI limit, and what supervisory action may be taken.

Changes to Regulatory Reporting: Adviser Charging and Product Sales Data (PSD), Including Feedback to CP14/5 and Final Rules Policy Statement Ref: PS14/13 29 September 2014 44 Pages The policy statement summarises the feedback received on the proposed changes to Section K of the RMAR and PSD reporting requirements.

It relates to the data strategy which the FCA published in September 2013, and sets out the regulator’s vision for the data it collects and holds, so as to ensure that all data collected is actionable, integrated and fully accessible across the FCA to help the regulator meet its objectives.

See also the Compliance Doctor feature on Page 52 Feedback and Policy Statement on CP14/02, Consultation on Joint Sponsors and Call for Views on Sponsor Conflicts Consultation Paper Ref: CP14/21 26 September 2014 93 Pages This consultation aims to resolve a small number of outstanding queries that arose during CP14/21, which

set out the detail of the FCA’s feedback to the responses and final rules in relation to sponsor competence. The final rules will be effective from 1 October 2014, except for those contained in LR8, LR11 and the definitions which will become effective on 1 February 2015.

The FCA is consulting on changes to the listing rules and a new Technical Note. The proposals are designed to facilitate access to the FCA by all sponsors performing a joint sponsor role, and to ensure that there are arrangements in place between the joint sponsors to help them perform their role.

Consultation period ends 7 November2014 Independent Financial Advice: Using Internal Specialists Statement 30 July 2014 The regulator has modified its stated position with regard to the acceptability of using specialist advisers within a firm, so as to improve client outcomes. It has accepted the argument that advisers may, often routinely, refer their clients to a colleague with particular expertise or experience - such as income drawdown, for instance – and it has decided to allow such matters within its existing rules.

In line with guidance published in 2012 (FG12/15), the FCA declares that firms can use internal specialists if they have appropriate systems and controls in place to ensure that personal recommendations provided by their advisers meet the required standard.

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Octoberr 2014

Implementing the Mortgage Credit Directive and the New Regime for Second Charge Mortgages Consultation Paper Ref: CP14/20 25 September 2014 334 pages This consultation sets out the FCA’s proposed approach to implementing the Mortgage Credit Directive (MCD). In particular, the UK Government has decided that second charge mortgage regulation should move from the regulator’s consumer credit regime into its mortgage regime as part of implementing the directive.

The paper sets out the FCA’s proposals for the new second charge lending regime alongside its plans for MCD implementation.

Consultation period ends 31 October 2014

Mobile Banking and Payments Thematic Review Ref: TR14/15 11 September 2014 16 pages This thematic review aims to determine how firms are achieving good outcomes for consumers when delivering mobile banking products.

The retail banking sector now enables everyday banking and payments to be made through a mobile device. Consumers of the UK’s largest retail banks made more than 18 million mobile transactions per week in 2013, the FCA says – twice as many as in 2012.

Dates Diary for your

OCTOBER 2014 1

Consultation period ends for Consultation Paper CP14/15 (Recovery and Resolution Directive)

6-8

Institute of Financial Planning annual conference Newport, Wales

10

Consultation period ends for Consultation Paper CP14/16 (Strengthening the Alignment of Risk and Reward) and Discussion Paper DP14/3 (The Use of Dealing Commission Regime)

17

Consultation period ends for Consultation Paper CP14/19 (EBA High Earners and Benchmarking Information Report)

18

Champions Day Ascot, UK

Redress for Payment Protection Insurance (PPI) Mis-Sales Thematic Review Ref: TR14/14 29 August 2014 28 Pages

EBA High Earners and Benchmarking Information Report Consultation Paper Ref: CP14/19 22 September 2014 22 pages The European Banking Authority (EBA) issued new final guidelines on 16 July 2014 in relation to data collection for high earners and remuneration benchmarking.

The new guidelines request more detailed information, including additional data on business areas and the breakdown of remuneration.

The FCA and PRA are consulting on the proposed changes to the data template relating to remuneration data for the 2014 performance year onwards.

Consultation period ends 17 October 2014

The FCA acknowledges that Payment protection insurance (PPI) has been the biggest issue of financial mis-selling in recent years and that it has significantly damaged public trust in financial institutions. A lot of progress has already been made toward restitution, however, with firms having handled over 13m PPI complaints and with disbursements of over £16bn so far.

The FCA says it will ensure that firms take fair proactive measures toward groups of customers they have identified as at high risk of mis-sale, but who have not complained. It is expected that another, potentially final, update on the PPI issue will be published in 2015, setting out the further progress that firms have made and what work if any remains still to do.

23-24 European Council Meeting Brussels, Belgium 31

Consultation period ends for CP14/14 (Proposed Rules for Independent Governance Committees) and CP14/13 (Strengthening Accountability in Banking)

31

Deadline for selfassessment tax returns 2013/2014 (paper only)

Continues overleaf

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F C A P U B L I C AT I O N S

October 2014

Dates Diary for your

NOVEMBER 2014 6

7

Consultation period ends for Guidance Consultation GC14/6 (Social Media and Customer Communications: The FCA’s Supervisory Approach to Financial Promotions in Social Media) Consultation period ends for CP14/21 (Feedback and Policy Statement on CP14/02, Consultation on Joint Sponsors and Call for Views on Sponsor Conflicts)

Early Implementation of the Transparency Directive’s Requirements for Reports on Payments to Governments Consultation Paper Ref: CP14/17 26 August 2014 28 pages The consultation, which relates mainly to the extractive or logging of primary forest industries, concerns the proposed early implementation of the Transparency Directive Amending Directive 2013/50/EU requirement.

The requirement is to prepare a report annually on payments made to the governments in the countries in which these companies operate.

Consultation period ends 7 October 2014 Social Media and Customer Communications: The FCA’s Supervisory Approach to Financial Promotions in Social Media Guidance Consultation Ref: GC14/6 6 August 2014 15 Pages

8

England v New Zealand Twickenham, UK

8-9

Institute of Financial Planning Scottish Conference 2014 Edinburgh, Scotland

9-11 World Economic Forum Summit on the Global Agenda Dubai, UAE 9-11 Consultation period ends for CP14/22 (Guidance on the FCA’s Registration Function under the Cooperative and Community Benefit Societies Act 2014 ) HAVE WE FORGOTTEN ANYTHING? Email editor@ifamagazine.com

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The FCA acknowledges that digital and social media are now becoming the media of choice in many cases for customer communications and specifically for financial promotions. Yet, despite positive benefits, social media creates challenges for compliance.

This Guidance Consultation aims to: n Clarify and confirm the FCA’s approach to the supervision of financial promotions (as defined in the legislation) in social media n Help firms understand how they can use these media and comply with our rules

n Remind firms that the rules are intended to be media-neutral to ensure that consumers are presented with certain minimum information, in a fair and balanced way, at the outset of firms’ interaction with them n Set out specific areas that firms need to consider, and provide some solutions and illustrative examples.

Consultation period ends 6 November 2014 A New Capital Framework for Self-Invested Personal Pension (SIPP) Operators Consultation Paper Ref: CP14/9 11 June 2014 62 Pages The FCA is consulting on proposed rules that will require the providers of workplace personal pension schemes to set up and maintain independent governance committees (IGCs). Having been working with the Department for Work and Pensions (DWP) and the Pensions Regulator (TPR) to design a package of reform measures that will help ensure that all workplace pension schemes are high quality and offer value for money, the consultation paper sets out proposed rules for IGCs. The new bodies will provide governance oversight of defined contribution workplace personal pensions, such as group personal pensions.

They will act in the interests of scheme members by providing credible and effective challenge to providers on the value for money of their pension schemes.

Consultation period ends 10 October 2014

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ACQUISITION AND SALES

O F I FA BUSINESSES Retirement?

Time for a change?

There are countless reasons to dispose of an IFA business, just as there are countless reasons to get hold of one.

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We help company owners looking to sell, exit or retire from the industry to optimise their company asset value with an appropriate solution for them, their clients and other stakeholders within their business. We do this by matching them up with appropriate acquirers, whose requirements and solutions are aligned to the needs and wishes of the seller.

We work with leading companies looking to grow and develop their businesses by acquiring or partnering with financial advisory firms.

If you would like to discuss options to sell, exit or retire, or acquire IFA businesses, please get in touch for a confidential discussion. +44 (0)117 908 9686 sam.oakes@gunnerandco.com

gunnerandco.com

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October 2014

INDEPENDENCE

Foregone Conclusion So we’re getting a long-winded Thematic Review on due diligence, says Gill Cardy? Why now? And what are we supposed to do while we’re waiting?

In advance of launching a Thematic Review on due diligence, the FCA’s prejudged position is that “inadequate due diligence underpins a lot of the incidences of crystallised risk we’ve seen.”

Continuing to explain their pre-conceived conclusions, the regulators explain that advisers can reply on factual information but not on opinion, and that just filling files with template due diligence materials is not acceptable.

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Ludicrous It is simply ludicrous that the FCA is telling us the outcome of the thematic review before it has even started. If it already knows what is right and wrong, then firstly with its shiny new emphasis on decisive and early action - it could (should?) tell us what it expects.

It is also offensive that, if the regulators already know what they want from us, they are not being explicit right

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October 2014

FACT OR OPINION The FCA confirmed on 30 September that it is to launch its long-touted thematic review on due diligence for retail investment advice “later this year”, and reporting some time “well into next year”.

“Due diligence, or at least inadequate due diligence, underpins a lot of the incidences of crystallised risk we’ve seen,” said Rory Percival, technical specialist at the FCA...

Keydata, Arch Cru... so it is a key important area.”

Sounds great. But what’s new?

now, so that we can review our systems and processes at the earliest opportunity.

Instead, how much money - our money, of course - will be spent concluding exactly what the FCA already knows.

Well, the regulator has perspicaciously observed that there’s a distinction between fact and opinion. If the manager tells you what’s in the fund, that’s fact apparently.

If he tells you that it’s low-risk, that’s opinion. Apparently we need help in distinguishing the two.

What else is in the Review? We don’t know, because the silence is still deafening. But we’re sure they’ll think of something. Watch this space.

ED’S COMMENT

Don’t Hold Your Breath They will start their review about now, and report “well into next year” - which means that it’s going to be at least a year before they can expect firms to take account of their “new” guidance. Except it won’t be new, because they already know the answer.

Look, the FCA has reviewed enough files in its time to know its definitions of ‘acceptable’ and ‘unacceptable’ – or, in our more terminologically inexact age, ‘good practice’ and ‘bad practice’. And if its people think they are addressing their consumer protection objective by failing to share this information with advisers at the earliest opportunity, then they are, quite frankly, not worth a pound of their salaries, let alone their bonuses.

That Risk Question Again Similarly, being coy about what specifically is ‘acceptable’ or ‘unacceptable’ in risk-profiling tools is startlingly inappropriate. I also learned that the FCA has a file review template.

Of course it does. So share

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it with us. If the FCA judges our advice processes, tell us by what measures we will be judged.

And I must revisit the question of risk that I raised last month. So, according to the FCA’s latest pronouncement, definitions of levels of risk are ‘opinion, and not to be relied on’.

Great. I’m very happy to make my own determination.

Mind-Readers Urgently Required But my file will only be ‘acceptable’ when my definitions are just the same as the regulator’s, or the ombudsman’s. I’m very happy (kind of) to concede that I cannot take at face value a fund manager’s assertion that using currency hedging

or alternatives as part of their investment strategy makes its fund low risk.

But, unless my high risk or low risk meets the same criteria as the regulator’s and the ombudsman’s, and unless we all work to agreed definitions which are known, understood and applied consistently across the whole of industry, advisers will always fail.

And if inadequate due diligence is allegedly only one of three common reasons for unsuitable advice then surely it’s imperative for the FCA and the consumers they are supposed to protect to tell us the other two as a matter of urgency. After all, we’re only advisers, not chartered mind-readers.

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16/10/2014 13:18

Financial Services Recruitment Specialists

True IFA

Expat Financial Adviser

Private Client Consultant

Cardiff, Birmingham, Basingstoke, Manchester and London

Qatar (UAE)

Inverness and St Albans

£35k - £45k plus bonus

Average earnings £80 - £100k tax free

£45k with car allowance and bonus

Recruit UK are working for a leading and secure firm who are actively seeking a True IFA to deliver full holistic financial planning to medical professionals.

Recruit UK are representing a reputable offshore wealth management firm who are seeking experienced Level 4 financial advisers to join their team across Qatar to deliver quality advice to the expat communities based there.

Recruit UK are working on behalf of a top IFA firm that due to business growth plans are looking to appoint a new Private client consultant.

Working within a mature and supportive environment, the IFA will receive the benefits and structure of an employed position without the need to bring their own client bank. 100% of quality leads will be provided and there is full support through a dedicated administration and paraplanning team.

Our client has an exclusive partnership in place with a Trade Union who has 150,000+ members ranging from junior to senior doctors and medical professionals. They have a successful marketing strategy in place and many leads are generated via email campaigns, media exposure and seminars.

Experience of working within the medical profession is not required for this role, however our client is seeking level 4 , SPS and CAS qualified IFA’s, Wealth managers or Bancassurers who have the right attitude, who are hungry and driven to go out and write business and who hold a proven track record in exceeding targets (Junior Advisers will be considered if you have level 4, SPS and strong track record) In return, our client offers a basic salary c40k for year 1 and 2, down to 18k (40% of all business written) in year 3. Bonus validation is 1.7x year 1 and 2.4x year 2.

There is a car allowance and also a structured career path that can lead to an exit strategy upon your retirement.

Our client is a highly secure company who are recession proof, as is the market you will be working in, so this is an extremely desirable role.

Contact Sam Oakes at Recruit UK on 0844 3714031

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Our client has been providing lifestyle financial planning to clients around the globe for almost 20 years, with their Qatar office being at the top of the billing list out of all their offshore offices.

Our client is looking to double the amount of advisers in their Qatar office within the next 2 years due to the number of ex pats needing quality advice and are ideally seeking hungry, career driven individuals who are not shy to get stuck in and who can demonstrate their desire to succeed in another country.

Qatar has a large percentage of expatriates which is continuing to expand, so there is plenty of potential to develop relationships and write high levels of business. They have a good reputation in Qatar with connections to The Gold clubs and Sports personalities who hold talks for the firm, generating a lot of leads.

Advisers will in the first instance be offered a small client book to work from however they expect to see natural hunters who have the entrepreneurial spirit to self generate business. Average earnings are 80-100k tax free, and the top earner this year is set to earn around £350k!!

Applicants for this role must be level 4 diploma qualified, have the passion to work in offshore financial advice and be aware of the differences of adapting to Living outside of the UK. This is a desirable role exclusive to Recruit UK and there is a fast turnaround between interview and starting the role.

Contact Frankie at Recruit UK for a confidential discussion

Our client is an award winning highly established firm and they have an envious amount of Private clients across the UK, including many large successful companies.

They have excellent Paraplanner support in place from their centralised office and provide all necessary facilities to work efficiently from a home and field based role.

The Private Client Consultant will provide profitable, effective and compliant independent financial planning advice to an existing client bank and new clients, identifying and developing new business opportunities through the relationships in place with clients, introducer’s and referrals.

Applicants will ideally have experience in corporate advice and be familiar in working closely with introducer’s and working in a bank background. Having a client bank to bring without restrictive covenants would be preferable but is not imperative.

To join this company you will need to be Diploma level 4 qualified and already be achieving high levels of business preferably in the IFA market. Individuals who demonstrate their desire to work towards level 6 and maintain a CPD will be preferred.

In return, the Private Client Consultant will receive a basic salary c£45k with Car Allowance of up to £4k, discretionary bonus and a generous benefits package.

As this is a home based role, you will also be in line to receive a home allowance to cover Monthly costs.

Contact Recruit UK on 0844 3714031 to discuss this opportunity in confidence.

16/10/2014 13:20

Contact us to discuss our latest opportunities:

T 0844 371 4031

Home Based Financial Adviser Kent, Surrey, East Sussex, London, Herts, Bucks, Inverness, the North East and the Midlands

Employed Wealth Manager

E HR@ifamagazine.com

Wealth Manager

Birmingham

Manchester and various UK locations

£60k - £125k basic plus bonuses

Basic up to £75k plus bonuses

We are currently representing a prestigious wealth advice and investment management business, winners of numerous industry awards and recognised for their impeccable training and coaching towards chartered and other specialist advice exams has earned them a high retention rate with employees and admiration from clients.

Our client is the market leader in PI and Clinical Negligence.

OTE of £75k plus monthly bonus Recruit UK is representing a successful and reputable Financial Planning Firm who has a national presence and a unique investment proposition. They are one of the best consumer brands in the market and have the financial strength as a global player.

They have a Financial Adviser proposition that will provide you with the security of a salaried career and give you the freedom to pursue your goals. There will be no need to bring your own client bank as there is great support in this role and 75% of the business you write will come from quality leads, however you will need to demonstrate strong business development skills to generate the remaining 25%.

This role would benefit an adviser who wants the loyal client bank to get you started, but who has the autonomy to drive business without being micromanaged.

It is a home based employed proposition where you will service clients across the local and surrounding areas.

On offer is a generous basic salary, OTE of £75K, Monthly bonus and there are a number of advisers at the firm who are earning £100K+. In addition to the large earnings, benefits include company car, flexible benefits package, home working costs covered, a generous pension contribution, dedicated support team offering paraplanning and administration at no extra cost and all risk and compliance management provided. You will also receive development resources, including support to become Chartered.

Contact Stuart Leaney or Frankie Pailing at Recruit UK on 0844 3714031 to discuss this opportunity.

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Due to growth through acquisitions and an increase in client referrals through professional relationships that include prestigious Law and accountancy firms, the company is looking to attract new advisers to work out of their modern offices based in major cities across the UK. The client has always operated on a fee basis, have an in-house investment management team, and full support in the way of highly qualified paraplanners and administrators. They also remunerate their advisers in line with other professionals such as solicitors and accountants, being considered a professional adviser is more important than ever just look up the recent FSA document titled ‘Risks to customer from financial incentives’ a clear indicator that higher basics are the way forward.

Shares are also offered to all employees.

You must be driven towards achieving Chartered and ideally have experience of fee based advice and knowledge of IHT, tax, Pensions and investments and used to working with professional introducer’s and clients preferably with investable assets to bring without restrictive covenants.

You need to be highly presentable and able to evidence previous success. It is essential that you have strong business development skills and can evidence experience on this side of financial services.

They are currently looking to expand their financial advice team with 2 experienced Wealth Managers.

Ideally our client is seeking chartered individuals who have experience of working within an accountancy practice or similar and who hold good technical skills. Due to the nature of the role, advisers can often work with families in sometimes distressing situations, so it is important to have the softer skills to manage these clients.

Our client has in place a number of professional introducer’s who pass leads to the Financial Consultants, so there is a good level of support towards building your business.

However an element of the role will be to build robust relationships with Solicitors and to maintain and generate clients, so it is essential that you have the exceptional communication and business development skills across a wide range of groups.

On offer is a Basic salary up to £75k plus discretionary bonus and car allowance of up to £6k.

This is a home and field based role, so only candidates who are flexible to work effectively from their own home will be considered. Head office is based in Manchester with opportunities across the UK due to the home based nature of the role.

To discuss this role in confidence, please contact John Anderson at Recruit UK on 0844 371 4031.

To discuss this role in confidence, please contact John at Recruit UK on 0844 3714031.

16/10/2014 13:20

HELLO? WE KNOW YOU’RE OUT THERE

Buyer looking to pay 3 times proven trail payable over 2 years We have been contacted by an IFA living and working in Cheltenham as part of a larger practice of 18 individuals under the umbrella of a directly authorised IFA company.

He is responsible for sourcing his own business and as such would like to expand his business via a small acquisition of an IFA practice/business book in the local area (around 50 miles radius of Cheltenham).

He is looking to buy a practice from an individual that can prove an on-going pension and investment ‘trail’ of around £25k pa but will consider any suitable business from £15k pa to £50k pa of existing trail. This could include a larger practice looking to ‘drop’ some of their smaller clients, assuming the definition of smaller was not less than £50k invested.

The ideal business book that he is looking to buy would have up to 100 active clients with pension and investment portfolio business from £50k to £250k + per client. FUM of between £5m & £15m.

A discerning IFA that puts client service at the forefront of his holistic independent financial planning advice whether it is at the point of sale or during the on-going review service. He doesn’t have any particular specialisms, bias or business exclusions. It is assumed that any business book will come with protection and mortgage business peripheral to the pension and investment clients.

If you are looking to sell your client bank maybe because you are retiring then he would be happy to discuss the possibility of buying the business.

For more info or to arrange a confidential introduction, please e-mail HR@ifamagazine.com

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THINKERS

October 2014

BRIC Thinking Jim O’Neill Retired Economist Born 1957 in Manchester Currently works on business and economic forums Badge of Honour There aren’t many people who give a name to an entire financial market vector, but the former head of global economics research at Goldman Sachs changed the global investment environment forever in 2001 when he published a seminal BRIC paper entitled “Building Better Global Economic BRICs.” Rarely has an idea seemed so much of its time.

What BRICS originally meant O’Neill’s paper proposed that the market should start to think of Brazil, Russia, India and China as a special group among the emerging markets – one which deserved to be considered not just because of its vast geography and its population size (they account for 25% of the world’s land mass and 40% of its population), but also because they currently command a combined gross domestic product of $20 trillion in PPP terms.

To that, he might have added that their currencies were stable by emerging country standards; that their ownership of consumer goods was growing particularly fast; and that their financial markets were both significant and reasonably liquid. O’Neill’s sense that these countries would grow to become major players in the global economy has proved cogent and accurate.

What it didn’t mean For investors, the BRIC acronym has entered widespread use as a symbol of the perceived shift in global economic power away from the developed G7/ G8 economies toward the

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“Those earliest predictions, shocking to some at the time, now seem rather conservative”

developing world. And it did not entirely console the antiglobalisation campaigners who continued to portray western inward investment as a form of economic colonialism, but at least it drew at least some of their fire away.

O’Neill has also never disputed that Brazil, Russia, China and India are an illmatched assortment. Two are democracies and two aren’t. Two are major commodity producers, while the others remain largely dependent on imports. Their levels of GDP wealth range from more than $10,000 per head in Russia to below $2,000 in India.

Not always easy to generalise.

The group finally gels Goldman Sachs generally avoided claiming that the BRICs would organise themselves into

an economic bloc or a formal trading association such as the European Union. But O’Neill was always fascinated by the prospect that the four countries would eventually form a political club or an alliance which might result in the better co-ordination of their growing economic power. And he is still convinced that the four are serious about their identity as a group.

Writing in the Bruegel European economic think tank forum (of which he is a board member) in July 2014, he declared that the proof of this could be seen in the littlereported fact that the four countries had now agreed to set up a joint development bank, to be headquartered in Shanghai and headed by an Indian.

Meanwhile, he says, the economic momentum of the four is still enormous despite everything. He agrees that, although all four BRIC countries had seen their GDP growth rates slow sharply since 2013, it was too easy to ignore the fact that, that because of China’s huge size, “the weighted average performance of the BRIC growth rate since 2011 is 6.5pct. Now this is down from 7.9pct the last decade, but higher than the previous two decades.”

Pass the MINTs Next up? O’Neill’s tip for the next decade includes the MINTs: Mexico, Indonesia, Nigeria and Turkey. The political risk for these four is probably in another league, but it’ll be interesting to see how they mirror the BRICs.

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October 2014

T H E OT H E R S I D E

A Little Knowledge Might be better than none at all, says a lightly-bruised Richard Harvey

One of the perhaps unintended consequences of RDR is that investors have been reminded that they can have more involvement in how their savings are managed - and that now is the time to forge a much closer relationship with their IFA. (“Hey, not that close, Tarquin….”)

The changes to the investment climate and pension regulations mean that many investors, who have previously been quite happy for their IFA to make all the decisions, are now pondering the switch from discretionary to advisory services.

Vanilla Flake A few years ago, when the world’s economy was falling off a cliff, my previous IFA scornfully dismissed a plea to be very, very careful with my meagre savings, and commented that, while my risk profile may have been cautious, he didn’t like “vanilla investments”.

To be fair, he didn’t take my money out of a safe haven and stuff it into North Korean government bonds. But I did need to know (and should have been better informed) about exactly what a “cautious” profile meant - as opposed to “progressive”, “adventurous” and “rather you than me, chum”.

may be girding your loins with armour-plated undercrackers.

The Other Pensions Opportunity Once you’ve explained yourself (“…but of course, we had no idea that the president of Middle Eastern Spondulix was planning to run off with his mistress and all the funds”), there is a real opportunity to repair the relationship by reminding the client of the upcoming changes to private pension arrangements.

Many investors simply don’t understand the new rules, and are going to need sound advice to ensure that, in due course, they don’t end up clutching at the turn-ups of the local social services bod, pleading for a free place in a care home.

Furthermore, it’s reckoned that some 40 percent of soonto-be pensioners are proposing to splash at least some of their cash, with “travelling” top of the list of retirement ambitions.

Wonder if they’ve seen the price of diesel recently.

So it’s your opportunity to re-position yourself with clients

as the fount of all financial wisdom. An indispensable Solomon the Wise.

Service Sells Apropos of that, in July’s IFA Magazine, Ian Price, divisional director for pensions at St James’s Place, made some pertinent comments about how motor retailers have dramatically improved their client relationships in recent years. And he reflected that “we all need to take time out to reflect on whether we have the right service strategy in place for our clients.”

It’s not just car dealers.

Anyone who works in the service industry has had to up their game during the financial crisis, and improve the way they engage with their customers.

So maybe the investment revolution, from RDR to pension de-regulation, is the great opportunity for IFAs to evaluate their own client contact skills?

Particularly if they wish that they had gone with the “vanilla” option, rather than trust that Middle Eastern guy, wherever he, his mega-yacht and his lubricious lady might be.

If you are an adviser who has recently made a duff investment decision on behalf of a client, you may be dreading the next review meeting – indeed, you

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16/10/2014 13:21

ADVERTORIAL

Peter Georgi of Halo Films talks about why IFAs need an “About Us” Video The About Us page is the second most important page on your website – only behind the home page. This is your one chance to talk about yourself, and not about your customers. This is the opportunity they give you to impress them. Your “About Us” is your audition - Seems self-evident to make it quality, right?

1 – Make your Branding Message Who are you? What do you do? Clients want to have a deeper understanding of the people who they will be dealing with if they select your company. And remember, it’s also a chance for you to talk about areas of speciality and identify who your ideal client is – this can be a good way of weeding out the unsuitable clients at an early stage.

2 – For Potential Employees When people hear about your company’s job openings, they will almost assuredly visit your website and check out your About Us page. Having a video that prospective applicants can watch is a great idea. They can get a feel for who you are and who you serve.

They should also gain a greater understanding of your values and your mission. It’s also a great idea to include your staff in the video so that the job seekers get a feel for your company’s diversity and the attitude and demographics of the people working there.

Prospective clients and job seekers should also learn the history of the company. Through all of this subtle information, the applicant finds out whether they might be a good fit for your company and whether your company is a good fit for them. Today’s employers realize the value of recruiting someone who feels at home and will stay. The About Us video is another tool for engaging prospects and helping to reduce the wasted time of interviewing someone who really wouldn’t be a good fit and doesn’t realize it until they show up at your office.

3 – For Current Employees Having an About Us page isn’t just about new employees.

It’s to help focus and align your current ones as well. A good About Us page gives your employees identity and a sense of proudness to be working for this company. It’ll also help your employees explain who they work for and what they do.

With thanks to Kirstie of WarroomInc.com

For more information on how we can help with a home page video, or any other aspect of video marketing, please get in touch: phone: 01453 810914 email: info@halofilms.co.uk You can also view examples of our work at: www.halofilms.co.uk

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To find out more go to avivainvestors.co.uk/AIMS/adviser, call 0800 015 4773 † or email fundandsalessupport@avivainvestors.com

For investment professionals only. This is not to be viewed by or used with retail clients.

The value of an investment can go down as well as up. Investors may not get back the original amount invested. The return and volatility objectives are targets only and there is no guarantee that they will be achieved. In order to fulfil the fund’s objectives the manager invests principally in derivatives contracts. Please refer to the fund objectives and investment policy contained in the Key Investor Information Document and the Prospectus. † Calls to this number may be recorded for training and monitoring purposes. Calls are free from a BT landline. Call charges may vary from mobiles and other networks.

Issued by Aviva Investors UK Fund Services Limited, the Authorised Fund Manager. Registered in England No. 1973412. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119310. Registered address: No. 1 Poultry, London EC2R 8EJ. An Aviva company. www.avivainvestors.co.uk CI0631001 09/2014

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