For today s discerning financial and investment professional

Will The Beijing Bubble Burst?

What s Good About Europe?
Eleven Things You Didnt Know
About Your Clients

FIVE MORE YEARS

AND AN AGENDA TO MATCH

JUNE 2015

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AV I VA

For professional clients and advisers only. Not to be viewed by or used with retail clients.
The value of an investment and any income from it can go down as well as up and outcomes are not guaranteed.
Investors may not get back their original investment. *Telephone calls may be recorded for training and monitoring purposes.

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A INVESTORS
For todays investor

At Aviva Investors, we believe its time to think

differently. Thats why our entire organisation is
united behind one common goal to deliver the
specific outcomes that matter most to todays
investor. By harnessing the exceptional breadth
and depth of our global resources, we cut a
path through complexity to focus on the specific
outcomes our clients need.
To find out more call 020 7809 6000*
or visit avivainvestors.com/outcomes
investor outcomes

Sustainable Income | Capital Growth | Beating Inflation | Meeting Liabilities

For todays investor

Issued by Aviva Investors UK Fund Services Limited. 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
CI063371 05/2015
Contents.indd 3

17/06/2015
03/06/2015 14:43
11:42

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

Brian Tora
an Associate
with investment
managers JM
Finn & Co.
Lee Werrell
a senior
compliance
consultant and
industry adviser.
Richard Harvey
a distinguished
independent
PR and media
consultant.

8
News
All the big stories that affect
what we say, do and think

16

Will the Chinese Bubble Burst?

Just another pause for breath, or something more
fundamentally troubling? Michael Wilson explores

20

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

Insurance on Investment Platforms

Neil Martin has

been covering the
global financial
markets for over
20 years.

22

Michelle McGagh
brings a wealth
of experience
on industry
developments.
Abbie Tanner
is Managing
Director
at Gliocas
Consulting.

06/15

Editorial advisory board:

Richard Butler, Michael Holder,
Ian McIver and Mark Pullinger

THE FRONTLINE:

All George Osborne

has to do now is
make the numbers
add up. So hold
tight for the
summer Budget

At last! What took us so long,

asks Defaqtos Gill Cardy?

Armageddon in April
The Sunset Clause is coming, says Garry Heath. What
will it cost the industry, and what can we do about it?

36
Finely Balanced
Its been a good run this year, but Brian Tora is
still wondering how much longer the mood can last

28
So You Think You Know Your Clients?
The unstoppable Abbie Tanner, MD of Gliocas
Consulting, lists eleven home truths

33
Ethical Funds
Theres more to it than just feelgood, says Nick
Sudbury. There are different kinds of getting there

38
Why We Need Europe
Marcus Morris-Eyton, VP of European Equities at
Allianz GI, on the economy, future and referendum

Editor: Michael Wilson

42

Art Director: Tony Merlini

A Cyclical Phenomenon

Publishing Director: Alex Sullivan

Aberdeen Asset Managements foray into

international cycling

editor@ifamagazine.com

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

Contents.indd 4

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17/06/2015 14:43

CONTENTS

June 2015

44
Burning Issues: Britains Year Ahead
Our panel of senior analysts is impressed by the
Tories election win. And confident about the outcome

48

Rugby World Cup 2015 Hospitality

And your chance to win a pair of tickets for the
World Rugby Awards in September

51

Bellpenny: Always Looking

Neil Martin continues his interview series
on exit strategies for advisers

56
MiFID II The Final Chapters
Its coming, ready or not, says Lee Werrell.
Do you know what to expect, and when?

60
FCA Publications and IFA Calendar
In the news, in print and in court. Our monthly
listing of whats new in FCA-land

65
Thinkers: Nassim Taleb
The man behind the
Black Swan phenomenon

66
The Other Side
Whos rich, asks Richard Harvey, and whos paying
the taxes? One things for sure, theyre different

IFA Magazine is a trademark of IFA Magazine Publications 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
2015. All rights reserved
IFA Magazine is for professional advisers only.
Full subscription details and eligibility criteria are available at: www.ifamagazine.com

IFAmagazine.com

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Ed's Welcome.indd 4

17/06/2015 14:56

WORDS OF WILSON

June 2015

Five Year
Plan
As the first month of Chancellor George Osbornes
brand new five-year mandate slips away, what
do the remaining 59 hold in store for us?

A foolish question, in
some ways. At the time
of writing, the nation is
still holding its breath for
the summer Budget on
8th July which will tell
us how the government
really intends to balance
its books. A budget for
working people? Yes,
probably. A smooth
continuation of the current
policy line? Unfortunately,
that probably wont work.
Why not? Well, for one
thing nobody is trying too hard
to deny that those pre-election
projections left an awful lot
of holes. The Institute for
Fiscal Studies has gone so
far as to claim that, of the
12 billion worth of welfare
cuts already announced, only
2 billion has actually been
firmly costed. Leaving ten
billion thats going to have
to be found somewhere else.
Or, if you like, a 6.5% slice
of the entire 154 billion tax
take during the 11 months
to the start of March 2015.
Balancing Act
The inference, then, is that
we are in for a tough time
on taxes if the Chancellor
is to get the budget balance
even halfway sorted by 2019.
Even the Treasury agreed in
March that the UK was still
borrowing 1 for every 10
we spend.Yes, Osborne can
probably scoop up another

IFAmagazine.com

Ed's Welcome.indd 5

five billion by clamping down

on tax avoiders although
in fact the March Budget
envisaged only a 3.1 billion
take over the next three years.
And things do seem to be
moving in the right direction
on getting multinationals
to pay their share of UK
taxes. Even if the non-doms
tax crackdown demanded
by Labour has now been
consigned to history. But all
this is, frankly, chicken feed
against a government debt
that has ballooned from 38% of
GDP in 2008 to 80% in 2014.
We could probably
argue the toss about how
the Chancellor is to achieve
his ambitious schedule of
reforms, but we need to
consider that a fiscal shortfall
is like toothpaste in a tube you can squeeze it from one
place to another. Thus, the
10 billion welfare spending
shortfall might be met by a
tax increase, just as Labour
wanted to fund the NHS
with a mansion tax. There
are a thousand ingenious
ways to fix an awkward
hole, and Mr Osborne has
access to all of them.
And What of 2018?
The ironic thing, of course,
is that the situation might
look totally different three
years from now. Britain
might be out of the EU,
with huge implications for

The nation is still

holding its breath
for the summer
Budget which
will tell us how
the government
really intends to
balance its books

tax flows into Brussels; the

slowing Chinese economy
might devastate our export
revenues in ways we cant
even begin to imagine. And
last but definitely not least,
Mr Osborne himself might
be leading the Conservative
Party. Then again, we may
have been struck by an
asteroid. Projections are
worth only so much.
Mike Wilson, Editor

17/06/2015 14:56

NEWS

Scare
Two

Stories...

.that Europe takes in its stride. Its been hard to know

which country is giving Brussels more grief at the
moment Britain or Greece. The odd thing is
that both countries are convinced that they
have their European contemporaries
undivided attention. But the
evidence suggests otherwise

On this side of the

Channel, David
Camerons efforts to
cosy up to European
leaders most
recently at the G7
in Bavaria - was
portrayed as a
brave a constructive
attempt to overcome
past differences and
get other leaders
onside for the
structural changes
which Cameron
says hell need if
hes to keep Britain
in the EU at the
2017 referendum.
Meanwhile, down
in Athens the news
broadcasters talk
of nothing else but
how the European
Central Bank and
the International
Monetary Fund will

News.indd 8

have to see sweet

reason and back
down if the Greek
government is not
to be forced into a
bigger default on
its 350 billion of
Eurozone debt.
Life Through a
Fisheye Lens
In an important sense,
both countries are
right. Well, from their
own perspectives,
anyway. A Greek
default that cost the
Eurozone bankers
1,000 for every man,
woman and child in the
common currency zone
would be unpleasant,
to be sure, but would
it destroy the euro
even if it happened as
a full-scale permanent
cessation of debt

On this side of

relations? (Actually
unlikely in the
extreme, although
a 50% haircut is
very possible.) In an
economic group with
an 11 trillion gross
domestic product,
it could probably be
finessed to such an
extent that Germany,
France and Italy
would hardly feel the
bumps in the road.

Dont Call My Bluff

You could probably

judge that from the
way that the European
financial markets have
weathered the Greek
uncertainty. Despite a
6% decline in the FTSE
Eurozone 300, theres
no sign of a panic yet.
Why, a 150 billion
default has probably
been priced into the
accounts already.

Mr Cameron,
meanwhile, has right
on his side when he
talks about the need
to amend some of the
rigidities in the EU.
And he has a good
deal of backing from
several other leaders
who dont like the ever
closer union any more
than we do. In this
respect his endeavours

the Channel its

all about David
Camerons 2017
EU referendum

IFAmagazine.com

17/06/2015 15:08

NEWS IN BRIEF

seem reminiscent of
Margaret Thatchers
insistence on EU
reforms in the 1980s
many of which were
ultimately successful,
and useful. But when
it comes to limiting the
border control freedoms,
Mrs Merkel and Mr
Hollande simply smile
and cross their fingers
behind their backs.
In a rather odd
piece of synchronicity,
Cameron and the Green
leader Alexis Tsipras
are experiencing the
same genial brush-off.
Europe has spent many
decades perfecting its
ability to encourage
errant nations
(sincerely) to stay in
the fold, while quietly
dismissing them as
nutcase nations that
need to be humoured,
and its paying off now.
It would be surprising
if Mr Cameron (look,
Ive lit the fuse and the
bomb goes off in 2017,
so youd better start
negotiating now) didnt
find himself punching
the same marshmallow
as Mr Tsipras (look,
Ive promised my
people something
unrealistic, but theyre
going to lynch me
and send in the hardliners if you dont start
being nice to me).
At least Cameron
has the advantage of
coming to the table
with a strong economy
behind him. Britains
quarterly growth may
have slowed from
0.6% to 0.5% in the
first quarter of 2015,
and the CBI may
have chopped its 2015
projection in June
from 2.7% to 2.4%, but
thats still a lot better
than the Eurozone,
which is currently
set for 1.5% growth

IFAmagazine.com

News.indd 9

this year, and most

of that coming from
the northern states.
The Wild Cards
Which brings us
back to the unknown
unknowns in the
European situation.
From Spain to Ireland,

But in Athens
the talk is of
nothing else
but how the
European
Central Bank
and the
International
Monetary
Fund need to

going to react if Greece

gets the Get Out of
Jail Free card from
Brussels without
having to do anything
more than wail about
the unfairness of
having borrowed so
much money and
then spent it all?
Not well, we
suspect. Their jealous
populations may decide
to do a little political
lynching of their own.
So we can probably
expect to see southern
Europe lining up beside
the banks to see that
justice gets done. Or at
least, to make a good
job of concealing any
mushy compromise that
allows Athens to slip
quietly off the hook.

Whoa there cowboy

The IMF cut its GDP growth
forecast for the US economy
in 2015 from 3.1% to 2.5%,
citing what it called significant
uncertainties as to the future
resilience of economic
growth. In particular, the IMF
feared that the Feds plan to
raise bank rates might cause
problems. There is a strong
case for waiting to raise rates
until there are more tangible
signs of wage or price inflation
than are currently evident.

Either way, the

current problems
with Britain and
Greece wont stop the
European project in

Should have sold in May?

back down

World stock markets paused

and drifted downward as
worries about the bond markets
dominated market sentiment.
News that Chinas exports were
flagging added to the pressure.
But oil and gold held firm.

Gulp
Global economic growth in
2015 was also downgraded
by the OECD, from 3.7% last
November to just 3.1%. The
first quarter of 2015, it said,
had been the weakest since
the 2008 financial crisis.

from Portugal to
Cyprus, there are
Eurozone member
states that have battled
manfully to maintain
an even keel during
the economic hardship
and austerity of the
last few years. So how
are their governments

its tracks. Although

both, in their respective
ways, have raised
valid points. I mean,
how stupid did those
banks have to be to
advance that cash
to Greece in the first
place? A little hubris
wouldnt go amiss.

17/06/2015 15:08

NEWS
NEWS IN BRIEF

Greecy Pole
Greeces relationship with the
European Union and IMF took a
turn for the worse, as PM Alexis
Tsipras roundly rejected a plan
proposed by RU Commission
president Jean-Claude
Juncker (below). Although
Athens got an agreement
to postpone a 300 million
May payment to the IMF until
end-June, its line continued to
be that a failure to concede
a general loan haircut would
mean the beginning of the
end for the Eurozone.

Forgotten
Treasure
Still on the subject of pensions, new research by insurers LV=
has revealed that the number of savers looking for lost
pension pots has grown by nearly 250% over the last 10
years, from 25,544 in 2005 to 88,757 in 2014

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data Crown Copyright and database right 2013. Source of performance: Morningstar as at 31.12.2014. Basis: bid-bid with net income reinvested. Launch date is 30.04.2007. Copyright - 2015 Morningstar, Inc. All Rights Reserved. Past performance is not a
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10

News.indd 10

Job No: 49694-3

Publication: IFA Magazine

Size: 110x380

Ins Date: 0

IFAmagazine.com

17/06/2015 15:08

LV= says that

a freedom of
information request
to the Department
for Work and
Pensions reveals the

Todays workers,
according to LV=, have
an average of just two
workplace pensions in
place; but one in five
has already saved into
three or more workplace
pensions. Youd suppose
that many would have
chosen to combine all
their savings into one

pot, but only 30% of

those with multiple
pots have in fact done
so. So you can see
how the money can
so easily get lost.
But theres more to it
than that. LV= research
reckons that as many
as one in ten workers
are likely to miss out on
pension savings because
they incorrectly believe
that if they leave a
job they can no longer
claim the savings they
made into their pension
while at the company.
From 2016, of
course, pension pots will
automatically follow
workers but, as LV
points out, that wont
help anybody to track
funds that may have
been saved before that
41% of all workers
with multiple pensions
say that they dont know
the value of their funds,

says LV=. For these

workers, the changes
cant come soon enough.
With todays
workers likely to take
up roles at numerous
employers throughout
their lives, many could
find themselves missing
out on a substantial
amount of pension
savings if they lose
track of their pots, said
John Perks, Managing
Director of LV=
Retirement Solutions.
Although people dont
lose the right to claim
their pension if they
move jobs, it is worth
considering whether it
makes sense for them to
put all their funds into
one place. This removes
the chance of someone
forgetting or losing track
of a pension pot they
have saved into and may
reduce the charges they
pay on their savings.

Lord Green

80

scale of the growth

in awareness of
the governments
Pensions Tracing
Service. And, it
warns, the number
of misplaced
pensions could grow
significantly as the
workforce becomes
increasingly transient.
It says that todays
average 25 year old
worker can expect to
take nine jobs over
his or her lifetime twice as many as the
cohort thats now
aged 65 or over.

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IFAmagazine.com

News.indd 11

11

17/06/2015 15:08

NEWS
NEWS IN BRIEF

Banzai
There was better news from
Japan, where first quarter
economic growth was
retrospectively revised from 0.6%
to 1.0%. The change leaves
Japans growth up by 3.9% on
an annualised basis, compared
to a preliminary reading of 2.4%.
The change was attributed to a
rapid growth in business spending.

The Equity
Sell-Off
- Its Official
UK portfolio managers are taking their feet off the pedals
after several years of heavy buying of UK equities - thanks to
a combination of election worries, tempting opportunities

Stuck Bits
Bitcoins plateaued at around $225
between April and early June,
Meanwhile a report from card
provider MasterCard declared
that the risks presented by digital
currencies far outweighed the
benefits, not least because on
average it takes 10 minutes for a
block to be verified - and that
digital currencies are far more
susceptible to hacking attacks

Dragon Smoke
China banned smoking in public
places such as shops, offices,
buses and restaurants. But
suppliers to the worlds biggest
tobacco market can relax in
the thought that having a puff
in the street is still allowed.

abroad, a growth of alternative investments - and simply, it

seems, a feeling that the rally has gone on long enough
UK portfolio
managers are
taking their feet
off the pedals after
several years of
heavy buying of UK
equities - thanks
to a combination
of election
worries, tempting
opportunities
abroad, a growth
of alternative
investments - and
simply, it seems,
a feeling that the
rally has gone on
long enough.
Natixis reviewed
147 model risk-rated

portfolios across 38
British firms during the
first three months of
the year. It found that
equity holdings across
all three of the portfolio
types measured shrank
between Q4 2014 and
Q1 2015 with the
majority being pulled
out of UK equity funds.
Now, up to a point we
might say that the
pre-election period is
over, of course, but the
sluggish performance
of the Footsie in the
second quarter didnt
suggest anything
better was happening.

Hello, Alternatives
So where did the money
go? Well, the trend toward
alternatives such as VCTs
and EIS investments has
been widely discussed, not
least in this magazine
but in this instance the
bulk of the reallocation
to alternatives among
Conservative portfolios
ended up with targeted
or absolute return
multi-alternative funds.
This, according to
Natixis, appears to be
a more medium term
strategic asset allocation
move on top of the
UK election issues.

Q1 2015 portfolio weightings by risk category

Source: Natixis

12

News.indd 12

IFAmagazine.com

17/06/2015 15:08

NEWS IN BRIEF
Average change in allocation: Q4 2014 - Q1 2015

The Worlds Lo-Cull Bank

Source: Natixis

Advisers were
(perhaps surprisingly)
keen on bonds, but
this time its been the
corporate rather than the
government bond scene
thats been experiencing
growth. Thats partly
because advisers are
sensitive to ongoing
duration risk fears,
but more particularly
because of a continuing
search for yield. And,
looking forward, Natixis
says that advisers may
need to step out of the
comfort zone if they
are to achieve proper
diversification in fixed
income allocations..
Overall, advisers
did a good job for their
clients in Q1 both
in terms of risk and
return, said James
Beaumont, Head of
the Portfolio Research
& Consulting Group
at Natixis. We hope

that by reviewing the

allocations being made,
we can help advisers
identify potential issues
before they occur and
help build more diverse
portfolios by identifying
uncorrelated assets.
For example,
we found very high
correlations between
funds in the mainstream
fixed income sectors,
which could make
portfolios more
susceptible to losses in
the event of adverse
market conditions. This
means advisers may
have to look beyond the
mainstream for sources
of diversification within
fixed income, such as
emerging market or
long/short debt funds.
The Way Ahead
Portfolios are still
performing well, but
advisers need to stay

vigilant for the factors

that are driving these
returns, and accordingly
which risks could hurt
them. Sharpe Ratios
are at historically
high levels, it adds.
A future Portfolio
Barometer, Natixis
says, will be focusing on
how advisers balance
their fixed income
exposures in a world of
vast government debt,
duration risk and a zero
risk free rate, set against
the low risk premium
available for taking
corporate credit risk.
But overall, it says,
the best approach to
portfolio construction is
to build diverse portfolios
that are durable enough
to withstand all market
movements and meet the
long-term expectations
of clients even if it
means short-term
underperformance.

HSBC announced a plan to cut

8,000 UK jobs, a loss of about
one job in six, as pressure
mounted for cost savings. But
globally, about 10% of the
banks 255,000 employees
are to be shed, mainly
through natural attrition, the
bank said. Meanwhile, HSBC
is preparing to separate its
retail banking and investment
arms, as required by law. It
is also expected to decide
on a possible change of HQ
out of the UK by December.

Good news, bad news

The UK trade deficit shrank to
just 1.2 billion in April, from 3.1
billion in March, according to
new data from the Office for
National Statistics. But it wasnt
a simple story, because a 8.6
billion deficit on goods had been
largely offset by an estimated
7.4 billion surplus on services.

Average allocations to fixed income sectors

Better than a pension?
House prices in Britain have
sextupled in 30 years, according
to the Halifax. An 8.6% price rise
over the past year has taken
the average home price to
196,067 in May, compared
with 35,623 in 1985.
Source: Natixis

IFAmagazine.com

News.indd 13

13

17/06/2015 15:08

NEWS
NEWS IN BRIEF

Transact VCTs
Transact became the first
UK platform provider to offer
venture capital trusts directly,
following the introduction of
new legislation that removes
the cumbersome need for
VCTs to be first bought by
consumers and then moved
to a platform. The new
project, under which VCTs
can be bought in a nominee
capacity while still qualifying
for tax relief, is in collaboration
with Octopus Investments.

Clarity Dawns
The FCA is finally getting down to details on the business of
pension transfers, after only six-months of shilly-shallying about
the rights that have been discussed for the last 14 months and
which have been in force since April. And about time too

Pop
Chinas richest man, Li Hejun
(below), lost around half of
his $30 billion wealth in 30
minutes as the stock price of
his company, Hanergy Thin
Film Power Group, fell victim to
a sudden panic apparently
because he failed to turn up to
the companys annual meeting.
But it could have been worse:
Dingxiang Loeng, another
billionaire was rumoured last
year to have been killed by a
rogue champagne cork.

That, of course, is
being a bit harsh on
the regulator, which
has been paddling
hard to keep up with
the Governments
welter of pension
reforms the
pensions freedoms,
the right to transfer
out of Defined
Benefits, and most
recently the mooted
right to sell off an
annuity contract
for cash. We could
speculate indefinitely
about what drove
the Chancellor to
such a late rush
of half-thoughtthrough promise, but
maybe an election
had something
to do with it.
Anyway, Policy
Statement PS 15/12
(Proposed Changes to
Our Pension Transfer
Rules, Feedback on
CP15/7 and Final
Rules) contains a lot
of information that
should have been
here months ago but

14

News.indd 14

which ony came up for

discussion in March
2015, weeks before the
new regime came in.
First off, the
regulator has decided
that pension transfers
over 30,000 must be
carried out or checked
by a pension transfer
specialist thus applying
what amounts to a
trivial threshold to the
obligations on advisers.
The point being that the
mere cost of advice for
smaller pension pots will
look disproportionate.
Slightly more
eyebrow-raising is that
the new rule requiring
professional checks does
not apply to pension
transfers for defined
contribution (DC)
schemes meaning,
it seems, that the
regulator has opted
against professional
supervision in such
cases. The key issue
here seems to be that
the FCA has excepted
situations where
the required advice

relates to conversions
or transfers in respect
of pension policies
with a guaranteed
annuity rate. (Which
would presumably
cover the annuitiesto-DC transfers as
well? It isnt clear.)
The FCA says that
over two thirds of the
57 respondents who
expressed an opinion
agreed broadly with
its proposals. And
accordingly, the new
rules took effect on
Monday 8th June.
But the FCA has
overruled, for the time
being, some demands
from respondents
that the examinations
syllabus for pension
transfer specialists
should be reviewed in the
light of the April pension
reforms. Not necessary at
this stage, the regulator
said but well keep it in
mind for the future.
You can read
the statement at
http://tinyurl.
com/p8w874a

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17/06/2015 15:08

June 2015

SOAPBOX

Will the
Beijing
Bubble
Burst?
Chinas investment policy isnt just
contradictory, says Michael Wilson
- its crazy
Any time I need a reminder
that Im not perfect in every
way, the recollection of my
investing experiences with
China do the job nicely.
Somehow I managed to
do more than just mistime
the market, turning a 40%
gain in the early noughties
into a small loss.
I also completely
misunderstood the funds I was
investing in believing that
pretty well any diversified fund
that worked on a reasonably
broad slice of the Chinese
market was likely to be able
to cash in on an economy that
had been growing at 10% a year
for two decades and which is
still going at 7% even now.
How shall I begin to describe
the things I got wrong? I wrongly
assumed that what was good
for China would also be good
for the stock markets. I figured
that, even though I doubted the
reliability of Chinese statistics
or the quality of corporate
governance, things surely
wouldnt be so far askew of

16

Ed's Soapbox.indd 16

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June 2015

the straight road ahead? And,

worst of all, I completely failed
to take account of the fact that
ordinary foreign investors werent
even allowed into Shanghais
main market. And that, as a
consequence, any fund I bought
into was quite likely to be
fishing in a rather small pool.
Local Authorities at the Core of It
That second point, about
corporate governance, cost me
a lot. Had I been older and
wiser, Id have taken note of the
incipient warnings about how
many dodgy infrastructural
investments were being
undertaken by the thousands
of local authorities in China
many of them relying on
the notion that the state was
not even entitled to question
their creditworthiness even if
it had been inclined to do so.
And yes, Id have realised
the folly of giving the local
authorities unfettered access to
the Chinese banks, which were
under government orders to
be nice to them. Id have seen
that letting the local politicians
appoint their own contractors
was a recipe for backslapping,
nepotism and corruption. I might
even have seen how they were
buying up land compulsorily and
then selling it on for huge profits.
And with a bit of luck and
perseverance, I might have
spotted the hideous growth of
the bad debts on the banks
balance sheets, which have
spiked horribly this year to
641.5 billion yuan ($103 billion)
a 38.2% increase in a single
year, according to a report
published in April. Meanwhile,
the report published by PwC
China Banking and Capital
Markets also declared that the
quantity of overdue loans that
could turn bad had increased
at an awful 112.6% in a year.
Too Easy to Get It Wrong
All I can say is that I was in good
company. Anthony Bolton, the
fund manager superhero who
had come out of retirement to
launch the Fidelity China Special
Situations Fund in 2010, got a
bloody nose too and was well

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Ed's Soapbox.indd 17

Dodgy infrastructural
investments were
being undertaken
by the thousands
of local authorities

advised to leave it to the local

specialist stock-pickers who
eventually managed to pull the
Fidelity fund back from the brink.
What had done for Mr Boltons
fund? The same factors, largely
an over-reliance on the quality
of Chinese statistics and the
probity of corporate governance.
A Decoupled Market
I had, however, also fallen into
yet another elephant trap,
by somehow assuming that
a thumping rate of economic
growth would automatically
translate into a healthy
performance for my funds. How
could I have missed the fact that
Chinese p/e ratios were already
touching 50 in mid-decade,
buoyed along by an overwhelming
confidence that the exponential
scale of future growth would
make it all right in the end?
And that was the next place
where I went wrong - but in the
wrong direction this time. Having
stagnated for a decade, while the
p/e dropped to just 10 or 11, the
market then began to soar again

in October 2014. But not for any

obviously economic reason.
Rather, the surge was
down to a single policy decision
in November that effectively
allowed foreign investors into the
Shanghai A shares market where
only the very biggest operators
had been allowed any kind of a
stake up until that point. That
opened the floodgates and the
Shanghai SE Composite duly
doubled in value during the eight
months to mid-June this year.
Curses, Moriarty, Id
been foiled again
The Party Rethinks Its Policy
But things have never been
straightforward in the Chinese
economic system, and there were
further twists to come. As youll
probably know, last autumns
Party congress approved a
very important re-orientation
of the Chinese economy which
effectively requires the nations
planners to rely less on foreign
investors and more on their
own domestic resources.
On the one hand, the

17

17/06/2015 15:17

June 2015

markets had decided, China

would henceforth be buying
a lot fewer raw materials for
making exports with. And that
in turn demolished a whole
slew of international mining
companies that had been
getting fat on their Chinese
customers. On the other, the
authorities had announced a
crackdown on local government
fraud, combined with a
general winding-down of
lucrative building projects
that had been sustaining local
economies for many years.

SOAPBOX

The Property Problem

All very sensible, in its own way.
There was never any doubting
that three decades of 8-10%
growth had been creating huge
structural strains in Chinas
economy. The inflationary
pressures alone have been
hideous, as some 600 million
people have left the land and
headed for the newly sprawling
cities. (Its estimated that the
combined urban population
will top 1 billion within ten
years.) And all that has needed

managing. Beijings anxious

focus on a consumer inflation
rate that has rarely exceeded
3% has been understandable.
The only problem was that
focusing on consumer prices
was missing the point. It might
not surprise you to hear that
its been the property market
that has experienced the really
important strains with prices
of new homes driven up by as
much as 13% in 2013 alone.
A recent report by Nomura
claimed that the property sector
directly accounted for 15% of
growth in Chinas gross domestic
product, and substantially
more than that if we included
construction materials and home
refurbishment expenditure.
Add to that the fact that
around half of all bank lending
is now collateralized against
property, and we start to see
just how vulnerable the whole
financial system might be to a
collapse in property values.
But heck, that couldnt
happen, could it? Not while
the urban populations are so
desperate to resettle in the
cities where the land prices are
highest? Well, brace yourself.
Chinese property is slumping.
New figures from the
National Bureau of Statistics
show that the ratio of unsold
property to annual sales reached
51.5% in 2014 more than
double the 24.7% recorded
in 2011. During the first two
months of this year, according
to JP Morgan, the value of
domestic property sales by area
fell by 16.7% against yearearlier levels and the volume
of sales dropped by 17.8%.
Little by little, the
realisation is sinking in that
a very large chunk of Chinas
wealth is looking down a very
deep hole as property prices
fall. One of the casualties has
been the local authority sector,
which can no longer expect
to cream off vast profits from
land sales meaning, in turn,
that urban budgets are being
squeezed. And all thats going to
get worse before it gets better.

18

Ed's Soapbox.indd 18

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June 2015

More Contradictions
So whats my point? Mainly
that if were looking for a
reason why Beijing should have
chosen this puzzling moment to
encourage foreign investors into
the Shanghai A shares market
at the very same time when
its telling the Chinese people
that they should rely on their
own markets and reduce their
reliance on foreign investors!
weve probably stumbled upon it.
Beijing, Im afraid, is
relying on the foreigners to
pump liquidity into the financial
markets at the very moment
when things are looking a bit
bleak for Chinese businesses.
If the local authorities are
no longer in a position to
expand their property-building
empires, whos going to take
care of the next stage in the
national renewal problem?
That, of course, is not what
were being told. The official
reason for last Novembers
opening of the Shanghai market
was that China was tired of
being subject to the volatile flows
of short-term investment, and
that it wanted some solid longterm investments of the sort that
foreigners could most readily
supply. It had been expressing
concerns for some time that the
appetite for those few funds
which used to be allowed to deal
in Chinese A stocks had been
generally lacking, and it wanted
to do something about it.
I think wed have to agree
that the market-opening
move has been successful.
The doubling of the Shanghai
index since October speaks
for itself. But ask yourself
what happens now?
Debts and Banking
Weve said that Chinese banks
are horrendously exposed to
the overheated property sector,
which is undergoing one of
the steepest cyclical declines
of the last 30 years. And that
if property prices drop much
further, a very real threat may
emerge to the Tier One capital
ratios of Chinese financial
institutions. (You may get to

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Ed's Soapbox.indd 19

Non-performing loans
among Chinese banks
rose by 141 billion yuan
during Q1 of 2015,
which brought the total
of iffy loans to 983 billion
yuan ($160 billion)

hear about that, but then again

you might not. Despite some
recent improvements, Chinese
banks have seldom been good at
confessing to their weaknesses.)
What we do know is that
the volume of non-performing
loans among Chinese banks rose
by 141 billion yuan during the
first quarter of 2015 alone - the
sharpest quarterly increase
on record, which brought the
total of iffy loans to 983 billion
yuan ($160 billion). We know
that because even the state
regulators confessed as much
in early May this year.
We also know that Chinas
total foreign debt totals $28
trillion - 282% of GDP, according
to the McKinsey Global Institute
in February. And that McKinsey
says $20.8 trillion of that
debt has arisen since 2007 accounting for more than a third
of total debt growth globally
during the last eight years.
Tokyo 1990?
The darker end of the
blogosphere is currently awash

with comparisons to the mess

that the Japanese banks got into
after their own property bubble
burst in 1989. Like China,
they had become sucked into a
spiral of unwise lending against
fast-growing property collateral
which then disappeared in a
puff of smoke that any conjuror
would have been proud of. Like
China, the Japanese banks of
the day were steeped in obscure
practices, and the result was
a colossal bad debt mountain
which led on into 24 years of
stagnation, unemployment,
monstrous government
debt and a weak consumer
appetite which still endures.
That, of course, is not a
completely fair comparison.
Japans economy in the 1980s
was mature, and so was its
demography. Unlike China, it
did not have the prospect of a
vast growing market ahead of it
to justify the bullishness of the
day. But before you deny that
any comparisons exist, make
sure youve been through all the
facts very carefully indeed.

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17/06/2015 15:17

G U E S T F E AT U R E

June 2015

A Natural Fit
Putting life and health insurance programmes on the same platforms as
investment plans is both logical and beneficial, says Defaqtos Gill Cardy

In the days leading up to

the implementation of the
Retail Distribution Review.
there was a great deal of
discussion around whether
retail investment advisers
would continue to advise
on protection business. The
new rules around adviser
charging and the restating
of the rules on independence
made the differences
between Conduct of Business
(COBS) rules and Insurance
Conduct of Business
(ICOBS) rules more stark

freely applied the higher

investment advice standards
to their protection advice and
transactions, simply because
it has never made any sense
for comprehensive advice to be
delivered under two regimes.

- but still not, in my view,

so dramatically different
as to cause advisers to stop
advising their own clients
on one of the most important
aspects of financial planning.

and then save later. The

catastrophic impact of long
term ill heath, critical illness
or death on an individuals
or familys finances ought
to make this a number one
priority for any household.

Any commission received

could be used to offset the costs
of retail investment advice which may have made advising
on ISAs and pensions more
affordable for the mass affluent.
Advisers have for many years

20

Guest Feature - Defaqto.indd 20

Two Ways of Looking At It

I was still a relative freshman
in the world of financial
advice when I realised that
there were essentially two
schools of insurance advice.
The first says that clients
should be insured first

This approach is of course

valid and sensible. The snag
is, it starts most advice
relationships with a sales
transaction - and one which
is focusing on bad things.

Once I became more

familiar with the world of
independent financial advice,
the six-stage financial planning
process and the delights of
cashflow modelling and creating
comprehensive financial plans,
I began to see insurance
instead as the underwriting
of the long term plan.
Clients are very much
happier to plan for the good
things in life, retirement, holiday
homes, future generations,
legacies (which are after all
statistically much more likely

to happen than the bad things).

Viewed like that, they see
insurance as the mechanism
for protecting the plan from
catastrophic loss of health or life.
Accentuate the Positive
This now gives the value of the
insurance a much more positive
and financially quantifiable
context, which in my experience
increased the uptake of my
recommendations considerably.
But this does beg a crucial

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June 2015

question. If retail investment

advisers did indeed stop advising
on protection, where are their
financial planning clients getting
their insurance needs met?
Perhaps they are being referred
to protection specialists, perhaps
insurance is mentioned as an
afterthought, and perhaps its
not being discussed at all.
But its because life and
health protection is vital as
the underpin which ensures
the successful implementation
of the financial plan in the
event of death or ill health,
that Im delighted to hear that
life insurance is now being
attached to platform services.
The target sum assured
is agreed and a quotation is
prepared. On the death of
the investor the sum assured,
less the value of the relevant
portfolio, is paid out. The
sum assured can be related
to the value of the total
platform portfolio, or just
to one element of it, such as
the pension or the ISA.

the relevant amount of the

insurance therefore changes
month by month. All other
things being equal, as the
portfolio grows in value, the
cost of the sum assured at
risk reduces, but the actual
premium rate increases with
the age of the investor. To
reduce concerns about changes
in the levels of premiums,
particularly as investors age,
the actual rate per 1,000 of
cover is set at the outset.
At the outset an illustration
of the likely costs is prepared,
based on the assumed growth
rate of the portfolio and the
age of the investor, so that a
schedule of the likely costs
over time can be seen prior
to application. Depending on
which platform is used the
premium is taken either from
the platform cash account or by
means of a separate direct debit.
The death benefits can
be written under trust, using
the trust facilities made
available by the platform itself,
or alternatively other trusts
may be used. Cover extends
to age 75, and it is up to the
investor whether the policy is
cancelled as soon as the target
sum assured is reached, or
whether to continue paying
the minimum premium for a
short while - perhaps to allow
for the possibility of a market
fall coinciding with the death
of the investor, to ensure
that the appropriate level of
benefit is paid to the estate.
Extending the Concept

Costing and Risk

Clearly, the sum assured at
risk changes from day to day
as the value of the underlying
portfolio fluctuates. And this
offering is made possible by
the feed from the platform to
the insurance provider, which
enables the cost of the insurance
to be calculated on a daily basis.
The cost of the cover is
single premium current costed,
and the monthly premium for

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Guest Feature - Defaqto.indd 21

So what could the future for

this type of insurance look like?
At the moment this protection
is based on single accounts
and single lives assured; but
as the market develops it is
possible to anticipate joint life
insurance becoming available or even joint life second death
insurance, set against the value
of family investment accounts.
An extension of the
default term of the cover
beyond age 75 could also be
considered to facilitate some
longer-term estate planning.
And there is mention of the

possibility of structuring a
gift inter vivos cover to ensure
sufficient funds are available
to protect against potential
inheritance tax liabilities.
There is also a case for
considering plans which pay
out an income on death, in the
same way as a family income
benefit policy would do so. It
is also possible to envisage
the introduction of an income
protection policy, perhaps
to ensure a minimum level
of household income when
combining investment income
and insurance income.
This development, now
being more widely marketed,
allows the holistic financial
planner to highlight the long
term value of a successful
investment strategy, but to also
ensure (and insure) that clients
have the right funds in place
to provide for their families
in the event of their death.
Getting It Right for the Client
All of this places protection
right back at the heart of a
comprehensive financial plan.
Advisers can make sure that
their clients really have taken
the action to protect themselves
that we have always known they
should. They can also ensure that
the protection their clients are
paying for is at exactly the right
level, paying for no more and no
less than is necessary. They do
not have to risk clients taking
no action, nor risk referring
their clients to other firms.
Although this is not a new
concept it looks very similar
to the mechanics of older
style integrated pension term
assurance contracts, or even the
death benefits on an endowment
policy - the bringing together
of insurance protection and
financial planning on platform is
a genuine market development.
Advisers and their clients should
welcome this real innovation,
and the enhancements which I
am sure will follow, in a world
where the pace of change has
slowed dramatically.

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T H E H E AT H R E P O R T

June 2015

April Armageddon
Garry Heath, author of the Heath Report, tells IFA Magazine that
the 2016 Sunset Clause may cost more than 15,000 IFA jobs
their consumer capacity and
banks have lost a further 6.2
million of capacity. Thats a
total of 13.8 million consumers
without potential advice.

You have to hand it to

Garry Heath of Mountain
Consulting, the author of
The Heath Report, he knows
how to get your attention.
Heath, who is currently
hard at work lobbying the
Government and the FCA
about the end of trail, is
claiming that if legacy trail
commission is banned in
2016, as currently scheduled,
then the IFA sector may lose
well over 15,000 adviser jobs
over the next couple of years.

Since RDR was

announced, he says, 13,500
advisers have left the
industry along with
a similar number
of administrators.
Couple that with the
jobs that could still go,
he says, and you have
initial job losses in
the region of 25,000.

And that even the best

case scenario points toward
the loss of 7,000 advisers representing just over 20%
of the total IFA base.
Phew. The 15,510 advisers
who Heath says might go have
a current capacity of three
million consumers. And the
total potential job losses after
trail commission disappears,
including ancillary tasks,
could even exceed 50,000.
A Heavyweight Voice
Heaths new report, entitled
The Heath Report Two (THR2),
and subtitled A Report on the
Consumer Detriment Caused
by the Introduction and
Continued Prosecution of the
Retail Distribution Review,
sets out a bleak future for both
IFAs and their clients. But
is he overdoing the grief?
Well, Heath ought to know
what hes talking about. He
was Director General of The
IFA Association between 1989
and 1999, and he was a central
player in the introduction of
regulation into the financial
services industry. He was also
instrumental in the reform of
FIMBRA and the creation of the
PIA. He created the Financial

22

Heath Report - June.indd 22

How We Got to Here

Services department of BIPAR

which still exists as the EU
body for advisers as well as the
Financial Adviser 5 Star awards.
Heath represented the
Association as its public
face including promoting
members interests to
Government, the civil service
and regulators. He is also a
regular media contributor
and speaks at industry events
throughout the world.
Some Ballpark Numbers
Heath starts out by declaring
that historically 23 million
consumers have accessed advice
via IFAs and Banks, but that
since RDR was announced
around 15.8m consumers
have lost their access to a
professional financial adviser.
In the last four years, he says,
IFAs have lost 7.6 million of

The THR2 report looks

back at RDRs two
main aims which,
he says, was to firstly
increase the academic level
of all advisers regardless of
age and experience (so no
grandfathering was offered), and
secondly to create a commission
free market which would not
be tainted by mis-selling.
The problem with the first
ambition is that it resulted
in 5,750 mostly older and
established advisers leaving the
industry. And the problem with
banning commission, he says,
is that you remove access to
advice from millions who wish to
take advice sporadically and pay
for it by commission. It is these
clients who lose advice either
by their adviser exiting the
industry, or else by their adviser
filling his lists with clients who
wish a regular relationship.
In the past, says Heath,
the average IFA Adviser had
405 clients. Since its peak
in June 2005, however, the
IFA sector has lost 6,500
advisers entailing a probable
2.6 million loss of capacity.

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June 2015

The other 7 million of lost

capacity, he says, has come
from advisers downsizing their
clients from 405 to 231 in 2010
and to just 195 by 2014.
The Trail Issue
It is the trail issue that is at
the core of future problems
believes Heath. The FCA is
of course already insisting
that advisers must use the
new commission clean
funds its the last parts of
legacy trail commission that
must go by March 2016.
The only practical way
this can be done is to move
the investment from their
current fund and place it in
the new clean funds, says
Heath. But you can only do
this if the client benefits from
the transfer, and in up to 40%
of the cases the client loses.
Some of the providers of
these policies are enthusiastic
to cut trail, as they will have
to keep an additional 0.5%
that they would have paid to
the adviser. Different types
of advisers are impacted in
different ways, with the more
established and those who
advised on a transactional basis
being the most badly hit.
According to Heath, there
are two main impacts:
Firstly, there is the loss
of income. Research from
THR2 suggests that only
1% of advisers have no trail
commission, whereas around
51% depend on trail for between
20%-60% for their turnover
(and beyond). Which leaves
only about 46% of advisers
depending on trail for less
than 20% of their turnover.
The Value of IFA Businesses
Then theres the loss of value.
Clearly, these numbers
demonstrate that the removal
of Trail will compromise the
future of many advisory firms,
says Heath. Trail commission
used to represent the one income
that was easily transferred to
another adviser. Before RDR,
a business was valued at least
three times the annual Trail

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Heath Report - June.indd 23

of current adviser capacity.

The Armageddon Scenario

income. So the sector was

valued at circa 9bn. But if
40% cannot be transferred,
then Heath suggests that 3.6
billion has been removed from
the value of IFA businesses
by regulatory interference.

In fact, A survey conducted

by Panacea suggests that the
final removal of trail would
be catastrophic to the future
of their businesses for 94%
of respondents. That would
equate to everything above
Very Low Risk being the
tipping point. If this is correct,
argues Heath, then the sector
would be destroyed because
the surviving companies could
not support the regulatory
and compensatory overhead.

This not only compromises

the existing advisers, says
Heath. It also creates issues
for those who wish to create
new forms of distribution,
because investors are unlikely
to be unwilling to invest in
businesses in a regulated
market where a companys value
can be altered in this way.

Regulatory Costs

The stark fact, says

Heath, is that if trail is
banned in 2016, between
7,260 & 15,510 advisers are
in danger of shutting down,
which will compromise a
further 1.4m to 3.02m clients.

The financial impact of these

changes have been described by
Heath as The Spiral of Decline.
The biggest third party cost
faced by IFAs is regulatory
and compensatory bills, he
says. Their division is broadly
spread amongst the number
of advisers; thus as adviser
numbers decline the cost per
surviving adviser increases.

The following chart

is an attempt by Action
Consulting, which undertook
the THR2 survey, to assess
the vulnerability of advisers
based on how dependent they
were on trail, together with
their preparedness for the
conversion to service charges:

Currently, advisers bills

are 20% bigger than if the RDR
adviser losses had not happened.
This will rise to 43% - 55% if
the end of trail happens. Each

By firm

Very high risk

4.96%

2.51%

High Risk

18.44%

19.63%

Medium Risk

32.62%

24.89%

Low Risk

25.53%

33.56%

Very Low / No Risk

13.48%

14.16%

Other

By advisers

4.96% 5.25%

If the tipping point is set to

include advisers at High Risk
and above, then the industry
can expect to lose another 7,260
advisers who are currently
servicing 1.4 million clients.
That would be a loss of 22%
of current adviser capacity.

increase triggers the potential

for another exit, and the sector
gets weaker and weaker.
Its not just strict numbers;
advisers may exit because they
deem the industry no longer
worth participating in.

If the tipping point turns

out to be as low as Medium
Risk and above, it points to a
loss of 15,510 who are currently
servicing 3.02m clients.
That would be a loss of 47%

The regulator hoped that

new entrants would arrive
to take up the slack by
offering Simplified Advice
Unfortunately the FCA and FOS
cannot agree its ground rules.

New Entrants Deterred

23

17/06/2015 15:35

T H E H E AT H R E P O R T

June 2015

This presents new entrants

with a nightmare scenario,
he says. New distributions
will need to invest heavily to
create an advisory process with
a sufficient scale and width
to satisfy large numbers of
currently disenfranchised clients.
To do mass advice; the
entrants will have to cut down

upon on the amount that is

known about the clients to just
that required to complete that
piece of advice. They then will
make the assessment of the
client needs and the solutions as
formulaic as possible. If there was
a Simplified Advice standard and
the process is judged by it - then
little danger might be expected.

The Heath Report Twos Lobbying Agenda

n THR2 is calling for legislation to restore proper
Parliamentary accountability to Financial Services
regulation. This is required to prevent consumer detriment
by unaccountable and unfettered regulation;
n THR2 demands that FCA eradicates the planned
removal of Trail Commission in 2016 immediately,
so that further damage can be avoided;
n THR2 believes that it is now time to expand the concept
of transparency to disclosing the cost of regulation as a
separate item. In this way clients can discriminate between
the value they receive from their adviser and the cost
of regulation over which the adviser has no control;
n THR2 believes that RDR should be seen as the abuse of
power that it is. It is a clear demonstration of what unfettered
and unaccountable regulation can do to an industry
and a lesson to other industries facing similar issues;
n THR2 proposes that a Royal Commission should be set up
to define what citizens should reasonably expect from the
Welfare State and what they need to provide for themselves;
n THR2 believes that RDR could have been prevented
by a more rigorous and robust representation by
the IFA trade association which was criticised by the
Treasury Select Committees report on RDR.
n As a result: the THR team have set up Libertatem a new trade
association for Impartial Advisers. www.libertatem.org.uk
The Heath Report Two can be obtained at
www.theheathreport.com/files/101312470.pdf

Hear and discuss these issues directly with Garry Heath,

as well as learning about other important topics
effecting the value of IFA businesses in London on the
9 July at the Gunner & Co Definitive Guide to
Building Value in your Business event.
www.gunnerandco.com/events

24

Heath Report - June.indd 24

However if in the future

FOS decides that claims made in
the Simplified Advice Market
should be judged by full advice
standards, then every case will
be non-compliant by virtue of
the information gathered.
There is also the question
of parliamentary accountability.
Heath maintains that RDR has
presented advisers, regulators,
consumers and politicians with
an excellent example of the
danger of the current regulatory
structure and in particular
its lack of accountability
to anyone but itself.
The regulator has forcibly
divorced 16 million of clients
from the advice they have
historically accessed, says
Heath. How this can be
seen as offering consumer
protection, promoting
competition or enhancing
integrity is a mystery.
An Own Goal on Pensions Reform
The other difficulty is that the
departure of 13,500 advisers has
happened at the very time when
the government wants to liberate
the current pension market a
process which in turn generates a
need for high levels of advice. This,
says Heath, makes it a nonsense
to be pursuing a policy that may
cause the exit of another 15,000.
Heath regards this as
impossible situation. We
have the regulator and
the Government working
against each other and yet,
under the FSMA 2000, the
Government cannot command
the FCA to do its bidding.
Worse still, the FCA
isnt even accountable to the
Parliament that created it.
Currently the regulator is
free to pursue any policy,
fill its committees with likeminded individuals, and
ignore any criticism.
Although it can face a Judicial
Review, it has the funds to buy
the best lawyers and that Judges
can be depended upon to give
them a home town decision. This,
he says, allows it effectively to
completely ignore MPs and the
Treasury Select Committee.

IFAmagazine.com

17/06/2015 15:35

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17/06/2015 15:35
15:30

B R I A N TO R A

June 2015

Enjoy the Ride,

For Now
The new Conservative
government isnt the
only thing tipping the
balance in favour of
optimism, says Brian Tora.
But its finely balanced
May has been an interesting
month, if a little less
challenging than was
feared in the run up to the
general election. There was
something rather satisfying
about seeing the pollsters
comprehensively disproved,
even if the final exit poll
did provide a steer towards
the eventual result. One
political commentator in
the days immediately before
the actual election opined
that the presence of socalled shy Tories voters
who professed not to have
made up their minds but
always intended to vote
Conservative should not
be underestimated. He
seems to have a point.

26

Brian Tora.indd 26

The bounce the result gave to

markets was short lived, though.
In a way that seemed rather
strange. A majority Conservative
government had been returned,
providing a degree of stability,
removing the need for protracted
and difficult negotiations so
that a minority government or
a coalition could be formed and
probably ushering in a period
of lower taxes and business
friendly policies. At the very
least, investors should be feeling
a degree of relief. And, what is
more, better than expected jobs
figures emerged from the US,
while China cut interest rates
for the third time in six months.

variety of jurisdictions have been

driven to buy equities simply
because yields are so
low elsewhere.
What QE
has done is to
make available
large quantities
of cheap money.

Cautious Around the Edges

Perhaps this is what is keeping
investors on the cautious side
of bullish. Slowing growth
has led China to join Western
governments in monetary easing.
The US is already reining
back on its quantitative easing
programme (QE), though there
is little sign of a rise in interest
rates there yet. However, the
Feds Janet Yellen has already
warned of unsustainable
valuation levels for American
shares, while investors in a

IFAmagazine.com

17/06/2015 17:09

June 2015

The aim was to help restore

economic growth after the
downturn brought about by the
financial crisis of 2008. That
some of this money will have
made its way into financial
assets is inevitable. Turning
off the monetary tap will have
consequences that are difficult
to gauge at this stage, but this
and the continuing geo-political
issues that remain unresolved
around the world have been
sufficient to encourage some
investment big hitters to
sound words of warning.
Stay in May?
Of course, it takes two to
make a market, and for every
naysayer you can expect to
find a nascent bull. All that
this underlines is that the
future really remains concealed
from us. Better than expected
industrial production figures
from the UK did little to help

the equity market, but they

certainly drove sterling higher.
Perhaps currencies are the
area on which to concentrate
for the time being - though my
experience suggests they are as
hard to read as any market.
For the time being, the
removal of doubt over who
governs Britain, alongside
an increasingly encouraging
economic backdrop, suggests
it is worth siding with the
bulls. Of course, this is a
dangerous call to make in May,
the month when investors are
encouraged to sell and go away.
The origins of this little
rhyme, the second line of which
encourages investors to stay
out of the market until St Leger
day, are believed to be rooted
in the days before professional
investors came to dominate
share trading and ownership.
The wealthy private investors
that were once the backbone of

the stock market might indeed

close their London homes
and retire to the country for
the delights of the season.
Little Excessive Hype
While the Cheltenham Festival
or Royal Ascot may well see
plenty of investment managers
enjoying the hospitality of
brokers and staying out of
the office for a day or two,
these days share trading is
a 24/7 business. Turning an
investment portfolio into cash
can be a very risky business.
While markets do tend to
travel too far, this momentum
will occur in both directions.
Presently shares may
look fully valued, but there
is little evidence of excessive
hype. Still, it is likely to pay
dividends and adopt a nimble
strategy once monetary
easing really does start to
come to a proper end.

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

LEEDS

BURY ST EDMUNDS

IPSWICH

CARDIFF

JM Finn & Co is a trading name of J. M. Finn & Co. Ltd which is registered in England with number 05772581.
Registered Ofce: 4IFAmagazine.com
Coleman Street, London EC2R 5TA. Authorised and regulated by the Financial Conduct Authority.

Brian Tora.indd 39

39

17/06/2015 15:56

G U E S T F E AT U R E

June 2015

So You Think
you Know Your
Clients?
Abbie Tanner, MD of Gliocas Consulting, Offers Eleven
Invaluable Insights to Kick-Start Your Marketing

When it comes to marketing

your financial advisory
or wealth management
firm, you need a clear
understanding of your ideal
client - their wants, needs

28

Guest Feature - Gliocas.indd 28

and preferences, and the

exact messages that will
resonate with them. The
more detail you have, the
better equipped you will
be to create a compelling

client value proposition that

incites them to take action.
In order to achieve this
level of clarity, I advocate
undertaking research of your
ideal clients either in-person,

IFAmagazine.com

17/06/2015 16:16

June 2015

by way of an event like a Client

Advisory Board, or else, in
instances where this may not
be possible, using an online
survey tool like SurveyMonkey,
SurveyGizmo or Smart-Survey.
Broadening Your Horizons
Step forward, the Paraplanner.
What if it were possible to go
beyond your existing clients and
understand the attitudes of retail
investors in the broader UK
market? Armed with this insight,
you would not only understand
the wider market but would be
well equipped to engage with
non-clients - using hooks in your
messaging that would allow
you to cut through the noise
and speak directly to them.
This was the eureka moment
that I had last year. I was
consulting with advisory firms
and helping them research
their own clients, refining
and packaging their value
propositions in a way that would
attract similar clients just like
them. At the time I felt we
could all benefit from a more
macro perspective of the retail
marketplace, an understanding
of the thoughts and opinions of
advised and non-advised clients
- especially in light of recent and
impending regulatory changes.
And thats where my new
venture, Gliocas Consulting, was
born. Our first research paper,
The Investor Engagement Survey
looks at the consumer journey
from the removal of commissions
via the Retail Distribution
Review to the introduction of
pension freedoms. It sheds
light on investors behavioural
changes and how they view the
many associated issues such as
the available pension options,
charging, investments, pricing
and technology, as well as how
they source financial advice and
are likely to do so in the future.
Below are eleven key
insights from the report that
will help you to understand
the subtle differences between
advised and non-advised clients,
and how you can use this
insight to refine your marketing
strategy and messaging.

IFAmagazine.com

Guest Feature - Gliocas.indd 29

Cost and control are

the main drivers for
investors to DIY

Non-advised investors believe

it is more cost effective to
manage their own financial
affairs. They also believe they
will retain full visibility and
control over their portfolios
if they invest without the
oversight of a financial adviser.
I find this very interesting
given the use of wrap platforms
by UK advisory firms, which
serve to provide clients with
a consolidated view of their
holdings, online, at any time. In
my opinion these DIY investors
have clearly not received what
I call modern day advice
so they arent aware of this
component of an advisers
offering. Cost is perceived as
an issue largely because for
many years this has been an
opaque area with charges
often hidden in percentages
or product based fees.
Marketing Insight:
Demonstrate the value of advice
vs. cost in your marketing and
show non-clients how they will
retain full visibility and control
of their investments. Case studies
are a perfect way to do this.

Advised clients
still personally
manage some
aspects of their affairs
Interestingly around one in
three advised clients manage
some aspects of their affairs
without the oversight of their
financial adviser. These clients
want advice for complex products
like pensions, taxation or trust
planning and more sophisticated
investments, however they
are confident enough to trade
on their own account in less
complex areas like investing
their annual ISA allowance.
Marketing Insight: Show
clients that you are happy
to collaborate with them on
aspects of their affairs that
you do not necessarily manage
on their behalf. Consider
also allowing them to use the
wrap technology you provide
to initiate these trades.

Increasingly, investors
are using online
resources to find
an adviser to work with
Not surprisingly, four out of
five advised clients will ask
a friend or family member to
recommend a financial adviser.
By contrast, non-advised clients
are prone to conducting online
research through search engines
such as Google, Bing or Yahoo!
or sites specifically dedicated
to finding financial advisers.
Marketing Insight: It is
imperative you have an online
presence that is effectively
optimised for search engines
and linked through from sites
such as LinkedIn, Unbiased.
co.uk or VouchedFor.co.uk.
you can also no longer afford
to ignore social media.

Despite front page

headlines, one in ten
investors are still not
aware of pension freedoms
Even those clients with pension
savings well above the 2014
UK national average of 44,000
(most of those included in
the research have between
100,000 and 250,000 or more)
some are still not fully aware
of the new pension freedoms.
Frighteningly, most of the
uninformed are nearing or living
in retirement (aged 55 years+).
Marketing Insight: If you
have not done so already,
initiate awareness campaigns
to your existing clients about
the new pension freedoms
and the implications for them
personally. Create educational
campaigns for non-clients, to
position your firm as a viable
source of retirement advice.

One in three investors

will seek professional
advice on their pension

Despite a recent YouGov

report to the contrary, citing
that large numbers would
not seek specialist pension
advice, our research shows
one in three investors will
definitely seek advice from
a professional adviser.

29

17/06/2015 16:16

G U E S T F E AT U R E

June 2015

Marketing Insight: This is

welcome news for advisers and
reinforces the importance of
engaging with your existing
clients and prospects around
retirement related issues.
If you have a blog use it to
stimulate discussion and
display your expertise by posting
relevant, topical content.

One quarter of
investors have no
intention of cashing
in their pension savings
Contrary to popular belief
and despite Steve Webbs
now infamous Lamborghini
comment many investors
have no intention of cashing
in their pensions. For those
that do plan to cash in
the majority will invest in
property (23%), a portfolio of
investments (22%) or will put
their money in the bank (21%).
Marketing Insight: Investors
appear have understood the
implications of the new rules and
intend to invest or save, rather
than lash out on consumables
(just 6.5% said they would buy

30

Guest Feature - Gliocas.indd 30

a car or other luxury items). I

recommend creating a series
of case studies to explore these
three strategies including the
implications and risks of each.

Charging: Investors
least prefer to pay on
an hourly rate basis

Across both groups of clients

(advised and non-advised) the
least preferred payment method
was hourly rate charging.
Non-advised clients prefer a
flat fee and advised clients
appear to be conditioned to
accept a combination of flat
fees and annual service fees
represented as a percentage of
the amount they are investing.
Marketing Insight: Ensure
your fees are both easy to
explain and easy for investors to
understand. If you have not done
so already, look at offering a flat
fee charging structure alongside
any percentage based fees.

Transactional investors
are not as wedded to
D2C as one might think

Awareness of D2C is high,

however non-advised clients do

not appear to be comfortable
trading online, without
taking advice. Less than one
in three would trade online
without financial advice. A
further third said that would
do so only on occasion.
Marketing Insight: This
intelligence reinforces the
earlier point that a collaborative
approach between financial
advisers and clients is needed,
so that investors feel supported
transacting on their own
account. This could form the
basis of a client communication
or other marketing messaging to
attract the attention of prospects.

Advised and non-advised

clients look for different
attributes in an adviser

Non advised clients are very

cost conscious and the main
attribute they look at when
appointing an adviser is
cost, followed by professional
qualifications. These attributes
are much further down the list
for advised clients who prefer to
work with an adviser that will

IFAmagazine.com

17/06/2015 16:16

June 2015

be with them for the long-term;

someone with whom they can
have an ongoing relationship.

areas of speciality, with your

designation logos placed nearby.

Marketing Insight: Advisers

need to demonstrate the value
of their services throughout
their marketing messaging,
while also reinforcing the
importance of relationships
and the stability of their team.

When it comes
to sources of
advice, bigger
does not mean better

In the past I have counselled

advisers out of leading with their
professional qualifications (I use
the example of a specialist
doctor.
I would never ask to see her
qualifications. I would take it as
given that she was adequately
trained to deal with my
particular
health issue). Instead, I
recommend you feature the logos
of any professional designations
prominently on your website
and promotional materials.
Do however avoid starting any
text with We are a Chartered
Financial Planners with a
combined experience of 187
years [*cringe*]. Instead
explain how you help your
clients and your particular

IFAmagazine.com

Guest Feature - Gliocas.indd 31

10

Across the board there was a

preference for working with
a smaller advisory firm with
whom clients could build
a strong relationship vs. a
major bank or institution.
One in ten clients said that it
would depend on the advice
that they were seeking.
Marketing Insight: If your
firm is small, dont be afraid to
position it in this way. For many
years I worked with advisory
firms who wanted me to make
them look much bigger than they
were. The research shows this
approach is no longer necessary.

11

Do chartered
or certified
designations
carry any weight?
The research revealed that
designations are indeed a

mark of quality for clients

right across the board.
Investors believe the quality
of advice they receive will be
better from a Chartered or
Certified Financial Planner.
Marketing Insight: Once
again feature professional
designation logos prominently
in your marketing: from
your website to your business
cards, letterhead, email
signature and any other
promotion featuring your
business name, corporate
logo or personal details.
I could continue own with
many more insights from
the Investor Engagement
Survey, however eleven is
what I promised so Ill have
to leave it here. The report
contains a raft of additional
insights, over 50+ pages,
relevant not only to advisers
and wealth managers, but
financial services providers
right across the market. If you
would like further information
about the report or any of its
contents, visit our website at
gliocasconsulting.com

31

17/06/2015 16:16

A D V E R TO R I A L

Exciting Times
Are Ahead
Exciting times are ahead
for The Wealth Care
Partnership (TWCP) as
they plan significant
growth of their business,
building on their already
impressive credentials

TWCP is a successful practice

specialising in holistic
financial advice to mainly
the pre and post retirement
market, including people
in later life, covering Long
Term Care, investment, tax
planning and Equity Release.
With a focus on providing
high quality financial and tax
planning to people with property
and savings and who value their
personal service, their marketing
activities attract high levels
of new enquiries to the firm.
Investing in the development
of their brand, TWCP are
working in conjunction with their
branding and marketing company

on a number of initiatives
including the launch of a new
website and the publication
of new client literature
which draws on their deep
understanding and experience
in the later life market.
Building on the success
and expertise of their existing
advisers, they want to expand
their adviser and client base
whilst preserving the very
things that set TWCP apart
from other financial advisers.
Two recent hires are helping
to put the building blocks in place
for the growth of the business.
Richard Knowles has joined as
Client Relationship Manager, and
will be the first point of contact
for all enquiries to the firm. With
Richards experience as a Bank
Manager for many years, he is
well positioned to support both
the advisers and the clients to
ensure the process from enquiry
to business is a smooth and
positive experience for all parties.
Lucy Fenwick has joined
from JP Morgan, as Strategic
Growth Manager and she will
be working closely with the
whole team to implement the

ambitious expansion plans

as well as developing other
strategic opportunities on
offer to support the planned
growth of the business.
The company was
established in 2007 to
provide specialist advice
to older people and their
families, and the advisers
are recognised as leaders in
the field of later life advice.
The Founding Directors,
Karen Rayner and Tim Anstee,
are both members of Society of
Later Life Advisers (SOLLA)
and Tim is SOLLA Regional
Co-ordinator for Hampshire
and SOLLA Joint Regional
Co-ordinator for Dorset.
SOLLA is committed to
raising the standards of practice
of those engaged in advising
older people by promoting the
highest levels of professionalism
in financial advice.
TWCP has recently won
the The Best Long-Term Care
Intermediary award at the
Health Insurance Awards for
the third time in four years
and has been shortlisted every
year for the last seven years.

S E E PA G E 6 4
FOR
OPPORTUNITIES

IFA View - EQ.indd 40

19/03/2015 14:55

PRODUCTS

June 2015

Wake Up and
Smell the Coffee
A 30-year history has still left ethical funds with only 1.1% of the UK
market, says Nick Sudbury. Partly its because clients dont have
a clear picture of how they want their funds to behave

Considering that the ethical

fund movement in the UK
can trace its origins back
to the launch of the Friends
Life Stewardship range
in 1984 and that there
are around 80 open-ended
ethical funds available
to private investors the
fact that the resulting
9.9bn of AUM represents
a piffling1.1% share of the
industry is disappointing. I
mean, arent pension funds
supposed to be falling over
themselves to buy them?
Apparently not, it
would seem. Figures from
the Investment Association
suggest that the proportion has
remained relatively static over
the last decade, with the growth
in money under management
keeping pace with the wider
market but not excelling.
One of the main problems,
I think, is that ethical means
different things to different
people, which makes it difficult
to create a mandate that will
appeal to a sufficient number
of investors. It also adds an

IFAmagazine.com

Products - Ethical.indd 33

extra layer of complexity when

trying to determine which
products would be suitable
for a particular client.
Different Screening Methods
Some of the funds use negative
screens to eliminate unethical
or immoral businesses from
their investible universe with
typical examples including
companies involved in tobacco,
alcohol, gambling, pornography
and arms. Unfortunately
there are lots of grey areas
such as pharmaceuticals
where opinions are divided.
Other mandates employ
positive screening to identify and
invest in businesses that make a
beneficial contribution to society
or the environment. These
will generally focus on socially
responsible investment (SRI)
and will consider sustainability
and environmental factors.
Many of them take a proactive
approach and will engage with
the companies to improve
the way they operate.
In reality life is rarely
this black and white, with

many companies failing to

fit into either category. Some
funds get round this by using
both positive and negative
screening to take into account
the various pros and cons of
a particular business, while
others use a best in class
methodology. This aims to
identify the companies in each
sector with the best record on
environmental or social issues.
Enough Choice
Ethical investors are likely to
have strong feelings on which
approach they prefer, but
they will also want a decent
performer too. Analysis by FE
Trustnet suggests that the 77
funds operating in this area
have produced 5-year returns
ranging from -21.6% to 109.3%
- but around half make it
into the 30% to 60% bracket.
There are successful funds in
every screening category, so
it should be possible to put
together a sufficiently diversified
ethical portfolio for even your
most discerning clients.

33

17/06/2015 16:29

PRODUCTS

June 2015

Henderson Global
Care UK Income
Type:

UK OEIC

Sector:

UK All
Companies

Fund
Size:

143.8m

Launch:

May 1995

Yield:

3.4%

Full of Beans

Ongoing
Charges: 1.7%

One of the best performing

ethical funds is Henderson
Global Care UK Income,
with a 5-year return of
109.3%. It operates in the
UK All Companies sector
and aims to provide income
with the prospect of capital
growth by investing in UK
businesses that contribute
to social wellbeing and the
protection and wise use of
the natural environment.

Manager: Henderson
Global Investors

The fund was launched in

1995, although Andrew Jones,
the current manager, only took
over in January 2012. Jones
has been at Hendersons since
2005 and is also responsible for
their Global Care Managed fund
and their Global Equity Income
OEIC. This complimentary
income-focused mandate
perhaps helps to explain why
the fund is currently generating
a healthy 3.4% yield.
Henderson Global
Investors has integrated its
environmental, social and
corporate governance factors

34

Products - Ethical.indd 34

henderson.com

deeper into its investment

processes so that they now play
a role in all of its funds, not just
those with the SRI label. Last
year the firm actively engaged
with numerous companies
including major holdings such
as National Grid, where it
discussed governance and other
corporate responsibility issues.
Global Care UK Income
has a relatively concentrated
portfolio of 70 holdings with
the top 10 accounting for 32%
of the fund. These include the
likes of AstraZeneca, Vodafone,
BT, Glaxo, Prudential, L&G
and National Grid. The main
sector weightings are Financials
at 33%, Industrials 16.7%,
Consumer Services 12.6%
and Health Care 10.7%.
The funds relative
outperformance against its

FTSE All-Share benchmark has

been helped by the absence of
miners and oil majors like BP
and Shell, which are excluded
from investment, and which
have suffered because of the
fall in commodity prices. Mind
you, more defensive shares such
as Tesco and British American
Tobacco are also unavailable to
the fund, and this could have
either a favourable or negative
impact going forwards.
Jones concentrates on
companies that are attractively
valued and that are capable
of generating good cash flow
and dividend growth. It is
pretty much the same approach
taken by most of the other
UK funds with an income bias
albeit that certain businesses
are excluded by the socially
responsible aspect of the
mandate. All the evidence
suggests that Henderson
Global Care UK Income would
be a decent mainstream
option for clients with a
similar ethical standpoint.

IFAmagazine.com

17/06/2015 16:29

June 2015

Dark Roasted
The team at Kames Capital
believe that ethical investing
and taking an active
approach to corporate
governance is not just
socially responsible, but is
good investment practice and
keeps companies focused on
their shareholders. They have
three ethical funds operating
in different sectors of the
market with their Cautious
Managed mandate up 73.8%
over the last five years.
All of the firms ethical funds
use the same negative screen.
This is designed to weed out
unacceptable businesses from
their investible universe and
because of the stringent nature
of the criteria the products have
been labelled dark green. The
firms overriding philosophy is
to avoid companies that cause
significant negative effects in
society or the environment.
There are a whole host of
screening criteria, but these are
clearly explained so that potential
investors know exactly what they

are getting. For example, Kames

will not invest in companies that
derive more than 10% of their
business through involvement
with alcohol, or those that
manufacture armaments. It also
steers clear of organisations that
provide animal testing services,
or that rely on intensive farming.
Kames Ethical Cautious
Managed aims to provide a
combination of income and
long-term capital growth by
investing in a diversified range
of UK equities, bonds and
cash, which meet the firms
ethical criteria. Equities are
limited to a maximum of 60%
of the portfolio in line with the
requirements of the sector. The
fund is ranked in the top quartile
over the period since inception
in March 2007 and has attracted
a decent 315m of AUM.

Kames Ethical
Cautious
Managed Fund
Type:

UK OEIC

Sector:

Mixed
Investment 20%
to 60% Shares

Fund
Size:

Currently 54% is invested

in UK equities with 40% in
fixed income and the remainder
in cash. The three main sector
weightings are Financials
at 32%, Industrials 24% and
Consumer Services 23%.
Together they account for 79%
of the fund, which implies a
lack of diversification, although
the risk is offset by the fact
that there are 234 individual
holdings. The largest equity
positions are Prudential, L&G,
Bunzl and Severn Trent with
the top 10 only accounting
for 14.5% of the portfolio.
The fund has clearly
outperformed the Mixed
Investment 20% to 60% Shares
sector average, but it is more
suited to clients looking for
capital growth as the yield is a
paltry 1.46%. Committed ethical
investors will love the dark
green tag and the fact that
they can look up the screening
criteria so that they know where
their money wont be invested

315.8m

Launch:

March 2007

Yield:

1.46%

Ongoing
Charges: 1.31%
Manager: Kames Capital

kamescapital.com

IFAmagazine.com

Products - Ethical.indd 35

35

17/06/2015 16:29

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, its
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 companys 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. Its also a great idea to include your staff in the video
so that the job seekers get a feel for your companys 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. Todays 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 wouldnt
be a good fit and doesnt realize it until they show up at your office.

3 For Current Employees

Having an About Us page isnt just about new employees.
Its 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. Itll 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

Products - Ethical.indd 36

17/06/2015 16:30

PRODUCTS

June 2015

Jupiter
Ecology Fund

Caff Stretto
Jupiter Ecology was the very
first authorised green unit
trust to be launched in the UK.
It is more narrowly defined
than many of the other ethical
mandates as it aims to achieve
long-term capital growth
by investing in companies
that demonstrate a positive
commitment to the protection
of the environment. The fund
operates in the global sector
and is up 44.6% in the last
five years, which makes it
a third quartile performer
when measured against its
less constrained peers.
Charlie Thomas, the
manager, joined Jupiter in 2000
and has been running both
Jupiter Ecology and the Jupiter
Green investment trust since
September 2003. The latter has
a similar mandate and portfolio,
but has outperformed in the last
3 years and is currently trading
at a small discount to NAV.
Thomas concentrates
on companies that provide
solutions to environmental and

IFAmagazine.com

Products - Ethical.indd 37

Type:

UK Unit Trust

Sector:

Global

Fund
Size:

479m

Launch:

April 1988

Yield:

0.1%

Ongoing
Charges: 1.69%
Manager: Jupiter Unit
Trust Managers

jupiteronline.co.uk

social problems. He believes

that these businesses will
have a long-term strategic
influence in the key areas of
infrastructure, demographics
and resource efficiency. His
ideal holdings are companies
with strong management, sound
balance sheets and sustainable
market share with good cash
generation. They must also
meet strict environmental
and ethical criteria.
It is a fairly concentrated
portfolio comprising 71 individual
positions, with the top 10
accounting for 28.5% of the fund.
These include: United Natural
Foods, a Canadian distributor of
natural, organic and speciality
foods; Pall, which provides
water filtration and purification
solutions; the biohazard
waste disposal company

Stericycle; and Cranswick, a

UK-based food producer.
The main sector weightings
are Industrials at 50.5%, followed
by Consumer Goods 12.7% and
Consumer Services 10.8%. Its
key geographic exposure is the
42.2% allocation to the US,
with 21.9% in Europe, 16.7% in
the UK, 13.2% in the Pac Rim
and the balance in cash. This
distribution is entirely a result
of the stock selection process
and is not due to any particular
asset allocation strategy.
Jupiter Ecology has a
longer track record than most
of the other ethical funds and
higher AUM of 479m. Where
it suffers is that it is more
narrowly defined, which means
that it may not be as well
diversified, and it also has a
very low yield of 0.1%. The fund
will mainly appeal to clients
who like the idea of investing
in companies that are actively
looking to provide solutions
to important environmental
and social problems.

37

17/06/2015 16:30

INSIDE TRACK

June 2015

Why We Need
Europe
As David Cameron lines up the 2017 Referendum, Neil Martin Interviews
Marcus Morris-Eyton, Vice President of European Equities at AllianzGI

So does a joint degree in

English and Philosophy
set you up for a career in
international finance? You
never know. Well be learning
later in this article about
how Marcus Morris-Eyton,
Vice president of European
Equities at AllianzGI, copes
with his arts background
in a world dominated by
numbers - but first we
need to hear his views on
Europe - a subject that looks
set to dominate matters
for many years to come.

38

Inside Track - Allianz GI.indd 38

Spending most of his

working week in Frankfurt
(but Fridays in London) gives
Morris-Eyton a particular
insight into the question of the
UKs role within Europe. He
is responsible for AllianzGIs
European Equity Growth Select
Fund. and he has the advantage
of sitting within the heart of the
European powerhouse, Germany.
The 2017 Referendum

echoes his firms view that

Prime Minister David Cameron
is likely to carry the day, and
that Britain will stay as a key
constituent of the EU. This is
a view now being expressed by
many of the Citys investment
houses, and it reflects in recent
opinion polls (if they can be
believed) that the majority of
people do indeed want to stay
within the European club.

Asked about the proposed

2017 referendum on the UKs
membership of the EU, he

On the future referendum

he is quite clear: We will
remain within Europe, and

IFAmagazine.com

17/06/2015 17:21

June 2015

we expect Cameron to be able

promote some hopefully strong
reforms after the negotiation
with the British public - and
importantly, also the British
press - to encourage people
to stay. At the moment, we
dont view that as a major risk
to either Europe, or UK.

Long Horizon, Benchmark-Agnostic

He continue: If you look at

the trading links, its becoming
more and more international.
Europe is essential to the
success of the UK economy.

Morris-Eyton works across

all the funds in the franchise;
however, the team are currently
seeing a lot of client interest
in the Europe Equity Growth
Select fund which focuses on
the teams 35 highest conviction
stocks. Just two years on from
its foundation, the fund has
gained 41.3% in absolute terms,
outperforming its benchmark
by 9.7%, and outperforming
MSCI Europe by 8%.

He is confident that Prime

Minister David Cameron will be
able to carry the day, although,
Its important that Cameron
is able to introduce some
meaningful measures to prove
that he can succeed in coming
negotiations. The fact that he
now has a majority in the House
of Commons gives him more
bargaining power when he goes
to Europe. You only need to
look at George Osbornes tone
recently, during a meeting of
European Finance Ministers,
to see that he is perhaps being
a bit more combative than
he has been in the past.

Morris-Eyton joined AllianzGI

some four years ago and is part
of the management team for the
firms European Equity Growth
Franchise. This is made up of
separate four funds, the largest
of which is the AllianzEurope
Equity Growth fund.

The fund is geared

towards exploiting European
opportunities that include stocks
with a high return potential
in the long run; growth stocks
which outperform in certain
phases; a concentrated portfolio
focusing on large-caps; and a
possible extra return through
single security analysis
and active management.

We are looking across the

whole European market, says
Morris-Eyton, with complete
freedom to look at our highestconviction ideas. We generally
try and run a benchmarkagnostic approach, which means
we are not hampered by any
benchmark construction. We
look for companies which are
able to benefit from inherent
competitive advantages, to
generate high, hopefully growing
returns. And we tend to take
a long investment horizon,
typically holding companies for
at least three to five years.
Positive Outlook on Europe
The teams outlook on Europe is
positive: Generally, in Europe
at the moment we have become a
lot more bullish. Weve seen clear
economic progress in the last few
years, and thats translated into
the European equity market rally.
But for us, as bottom up stock
pickers, the fundamentals are all
we focus us on, so its important
that this really translates through
to underlying earnings growth.
And thats finally what were
beginning to see in some of the
numbers coming through.

If you look at
the trading links,
its becoming
more and more
international.
Europe is essential
to the success of
the UK economy

IFAmagazine.com

Inside Track - Allianz GI.indd 39

39

17/06/2015 17:21

June 2015

He also makes the point that,

although investors have seen
some welcome multiples which
have benefited everyone, the next
stage of the European equity
market rally needs to be driven
by underlying earnings growth.
Quantitative Easing
from Frankfurt
Asked about the European
Central Banks aggressive
Quantitative Easing programme,
his view is guarded. QE provides
relief for the rally and will
provide some liquidity, but there
comes a point where multiples
cant go too much higher. I think
European equities are now no
longer cheap on an absolute basis.
But, perhaps on a developed
basis, if you compare Europe to
other developed equity markets,
like the US, or Japan for
instance, then they are trading
at quite a significant discount.
The attraction for Europe is
that, if you take the simple p/e
equation, the earnings in that
equation have been virtually
flat for the last four years.
For us, QE is nice, but it
must be earnings which drives

INSIDE TRACK

the markets now. The market will

need to look beyond QE, and its
crucial that we still do see some
of these tough structural reforms
implemented. This is where the
Germans are important, because
they are insisting that these tough
measures are pushed through.
Greece
And so to the inevitable question
of Greece. Again, the house
view is that it will shortly
be almost business as usual.
Morris-Eyton explains:
If you listen to the tone of
some of the leaders in Greece,
its becoming more conciliatory.
I think that theyve realised that
the hard and quite aggressive
rhetoric they had used in their
election campaign needed to
be watered down, and now a
compromise is likely. But, as
ever with Greece, it wont be
easy, wont be straightforward,
and it will require a lot of
negotiations. But I dont
expect Greece to leave.
Regarding Germany itself,
the country in which MorrisEyton spends most of his time,
he says the country is well

positioned for recovery, with

two big advantages. Firstly, as
a net importer of oil, Germany
is reaping the benefits of far
lower oil prices, and secondly,
its rate of recovery will pick up
in-line with the rest of Europe,
which is after all Germanys
main trading partner
About That Arts Degree
As for Morris-Eyton and his
degree, and his ultimate career
choice, he has this observation:
I did English and Philosophy at
University. Its something that
Germans find quite strange in
all honesty, that you can do a
degree in the UK that has very
little relevance to economics. I
see most of my German peers
and theyve all done economics,
masters, and certainly have not
studied English and Philosophy.
I think it is good, though,
and it really provides some
balance to the team. Of course,
philosophy is not what I practice
every day in my job, but it
does give you an interesting
way of arguing and thinking,
and of analysing companies
and management.

Of course,
philosophy is not
what I practice
every day in my
job, but it does give
you an interesting
way of arguing
and thinking,
and of analysing
companies and
management

40

Inside Track - Allianz GI.indd 40

IFAmagazine.com

17/06/2015 17:21

Welcome to London Capital Club

Your space in the heart of the City for

meeting, dining and networking

A Space for Meeting

Events & Networking

London Capital Club is the perfect location for

meeting with clients over an informal coffee, a
spot of lunch, or in one of our sumptuous private
meeting spaces.

We host a range of networking events, as well

as keynote speaker events. We have spaces for
members events and can accommodate up to
150 delegates in a variety of room set-ups.

London and Beyond

Restaurant Fine Dining

Club members receive the same exceptional service

in over 250 clubs worldwide, which make up the IAC
network, as well as access to further benefits, such as
discounts at some of the countrys best golf courses
and hotels.

Enjoy the brasserie-style ambience in our public bar and

restaurant, @15, formal dining in our members restaurant
The Walbrook Grill, or hold a private function in one of our
historic rooms for an outstanding fine dining experience.

We look forward to welcoming you to London Capital Club

T: 0207 717 0088
E: enquiries@londoncapitalclub.com
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W: www.londoncapitalclub.com
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Inside Track - Allianz GI.indd 41

17/06/2015 17:21

I FA V I E W

In It For
The Long Run
Jill Maxwell, Group Head of Sponsorship and Corporate Events
at Aberdeen Asset Management, explains to Neil Martin
that sports sponsorship is a long term investment

Its fair to say that cycling

has grown in popularity
hugely across the country
since that magical year
when Bradley Wiggins
won the Tour de France
(the first ever Britain
to do so) and won Gold
at the 2012 Olympics.

of which rider had digested

what collection of banned
substances to get himself up
the next mountain side.

Who can forget last years

scenes in Yorkshire when the
Tour de France chose Leeds as
its starting point? And when
over a million people turned out
to wave the riders around one
of the worlds most spectacular
and gruelling sporting events?

But the game itself

has cleaned up, and the
transformative power of Team
Sky and its director of sports
David Brailsford has put
cycle racing firmly into the
nations consciousness. These
days you can have a proper
conversation in the pub on
the Manx Missiles prospects
for this season. (Although, of
course, the man himself has
his own team these days.)

Things have changed a lot

over the last five years, and very
much for the better. In the bad
old days, professional cycling
had been one of those sports
which garnered little interest on
this side of the Channel, unless
of course it was the question

Yes, the age of the

push bike is upon us and,
despite our harsh weather
and crowded roads, cycling is
growing rapidly in support.
Which is why Aberdeen Asset
Management (AAM) has chosen
to sponsor a professional

42

IFA View - Aberdeen.indd 42

cycling team augmenting a

roster of sports that the fund
management group already
sponsor, and including golf,
sailing, skiing and rowing.
But this is no case of a City
firm simply jumping onto the
latest sporting bandwagon.
AAM has shunned the fickle
glamour of a top international
team and gone for what
we might call, in football
parlance, a Championship
rather than Premier team.
Definitely Nothing
Ordinary About It
Yes, AAM has gone for a threeyear sponsorship deal that
makes it the main jersey sponsor
of pro-road cycling team NFTO
(Not For The Ordinary). A name
thats been well chosen. At the end
of the 2014 season, NFTO was
ranked the number one in the UK.

IFAmagazine.com

17/06/2015 17:22

June 2015

The Corporate Advantage

John Wood, the founder and
owner of NFTO, said at the time
of the original announcement
last month: We are extremely
proud to be teaming up with
Aberdeen Asset Management
in 2015 and onwards. Its the
perfect partnership for us and
we couldnt have found a more
ambitious and forward thinking
company to get on-board and
support our aspirations.

Life is like riding

a bicycle in
order to keep
your balance,
you must keep
moving.
Albert Einstein

Youve never heard of it?

The team has aspirations to
compete at the sports highest
level - which means it wants to be
invited to take part in the sports
most prestigious event, the Tour
de France. But its important
to remember that the French
jamboree isnt the only game in
town instead, like tennis and
golf pros, professional cyclists
and their teams now have a long
season with various Tours being
held throughout the world.
This season the team has
set its sights on a number of
high profile UK races, including
last months inaugural Tour de
Yorkshire. That was the first
race in which NFTO competed
as part of the partnership with
AAM - and the team is also set
to race in the Tour of Britain
and the Tour Series, most of
which will be aired on ITV4.

IFAmagazine.com

IFA View - Aberdeen.indd 43

Aberdeen participates in
sponsorships where it can get
actively involved and make a
difference, he told us. They
have a history of supporting
sport from the grassroots and
helping to develop talent. This
approach fits with NFTOs
ambitions to reach ProContinental level in 2016 and
World Tour by 2018. We want
to continue to nurture youth
talent like the exciting Eddie
Dunbar and provide a career
springboard for World Tour
talent such as Adam Blythe
(NFTO, 2014) and Steele
von Hoff in 2015 to return to
the pinnacle of the sport.
The point about helping
to develop talent is stressed
by AAMs Jill Maxwell, who
works out of the firms US
headquarters in Philadelphia.
She explains that the firm
has an entrepreneurial spirit
and in the same way they like
to nurture their own talent
internally, they do the same
in their sports sponsorship.
Whatever sport they back,
they look for young talent at a
turning point in their career.

positive way to their clients.

Cycling for example, not
only puts their name across
the UK and continental
Europe, but also gains them
valuable TV coverage.
AAM CEO Martin Gilbert
agrees This is the first time
weve worked with a cycling
team, he told us. The profile of
the sport has grown massively
in recent years, and we have a
long track record of supporting
UK sports people from the
grassroots up to professional.
Partnering with NFTO
makes sense for us because
theyre a strong, successful
team with big ambitions.
Both are qualities we admire.
Many of our own people and
those we work with enjoy
cycling, so its an opportunity
to engage with them and
increase the awareness of who
Aberdeen is and what we do.
So, if you catch the cycling
teams on TV, or on the roads
around Britain, look out
for the AAM shirts.
You can find out more
about the NFTO Team
at www.nftopro.com

The fact that we nurture

young sports talent is very
important for the Martin
Gilbert, the CEO of AAM,
who sees our sponsorship of
sports as an opportunity to
help develop talent, and then
reflect that within the firm.
Its not all sports altruism
of course. Maxwell explains
that the benefits of the various
sponsorship programmes
are huge, because they
not only promote the AAM
brand on an international
level, but also reach out in a

43

17/06/2015 17:22

BURNING ISSUES

June 2015

2020 Vision
The Conservatives election victory gives the
government a blissful five year window of undivided
policy rule. Our Burning Issues panel wonders
what the next seven months will bring?
Yes, weve been putting
our panel on the spot
again. Last month we
asked them to take a view
on the long-term outcome
for commodities, which
have been yo-yoing wildly,
and this time were biting
the bullet with the really
important one. What will
the markets make of the
new administration, shorn
of its obligation to keep the
Liberal Democrats onside?
Will we see the promised
economic recovery holding
up? Will the fixed interest
markets revert to the historical
mean after seven years of
hype? And, most importantly,
does it matter anyway what
Messrs Cameron and Osborne
decide, at a time when external
and international factors
are driving the markets?
As ever, our grateful
thanks to this months
respondents, who both
deserve an award for bravery
ahead of the July Budget.

Meet the Panel

Lucy OCarroll

Chief Economist at
Aberdeen Asset
Management

Tom Elliott

International Investment
Strategist at
deVere Group

44

Burning Issues.indd 44

Question 1:
The strong showing in the May election
has given the Conservatives a working
majority. Does this mean a continuation
of the current economic policy line,
or will the side-lining of the LibDems
give the George Osborne room to flex
his muscles in any new directions?

Lucy OCarroll
The second 2015 Budget
[now due on 8th July] should
give additional clarity on
so-far-unfunded campaign
commitments to lower taxes
and raise health spending by 8
billion more than inflation and
freeze rail fares. The Chancellor
has also pledged to legislate
within 100 days to introduce a
tax lock - in effect, banning the
government from raising income
tax, value-added tax or national
insurance in the new parliament.
These events are likely to
signal a defining characteristic
of the new administration: the
task of deficit reduction is to be
undertaken via spending cuts,
not tax increases. A spending
review scheduled for the autumn
should both pin down the detail
of where 12 billion of additional
welfare cuts are likely to come
from and provide clarity on
the impact of the governments

fiscal plans on departments

that unlike pensions, schools
and overseas aid have not been
afforded special protection. The
Institute for Fiscal Studies has
described these cuts as probably
as difficult as those achieved over
the last parliament, while the
Office for Budget Responsibility
(OBR) has characterised the
current plans for fiscal tightening
as a rollercoaster. None of
this austerity implementation
will therefore be easy.

Tom Elliott
The Lib Dems bought into most
of the fiscal and economic policy
decisions of the Conservatives
in the last coalition government,
so little change is expected.
Chancellor Osbornes goal of
eliminating the 90bn deficit
in 2018-19 will persist. The
deficit is 5% of GDP, taking
this amount out of the economy
in the form of public spending

IFAmagazine.com

17/06/2015 17:23

June 2015

Tom Elliott

Question 2:

cuts and tax increases poses

risks to the economic recovery.
Fortunately recent data
suggests that in the near term
at least- the private sector is
sufficiently robust pick up most of
any public sector job losses. Tax
policy is unlikely to change much,
though we can expect the wealthy
to perhaps suffer further hikes
in NI and pension savers further
cuts in annual contributions
that attract tax savings, and
in the lifetime allowance.

Its often been said

that the FTSE-100
companies derive
70% of their
earnings from
outside the UK.
(Oil and financial
services, for
instance.) Does
this imply that the
domestic political
scene is largely a
sideshow for the
financial markets,
or can we expect
to see sentiment
shadowing the
fortunes of the new
government?

This often-cited figure does

indeed suggest that the
FTSE 100 is an index of
global corporate health, not
that of the UK. And indeed,
investors who want exposure
to the UK domestic economy
are rightly advised to look at
mid and small-cap stocks.
However, CEOs of FTSE
100 companies with sizeable
operations in the UK (even if
they constitute a small part
of their global activity) would
argue that keeping an eye on
Westminster is very important.
This is because of the regulatory
and taxation powers that
the UK government has.
FTSE 100 banks face a
distrustful public and their
MPs reflect this distrust, which
accounts in part for the Bank
Levy and for the requirement
for their retail operations in
the UK to have ring-fenced
balance sheets. Meanwhile
the energy sector is subject
to tax on North Sea oil, on
investment allowances and
charges, and windfall profits
taxation that alter on the mood
of the government of the day.
Pharmaceutical
companies
are subject to
pricing caps and
investigations, while
telecom companies
have to operate in
an environment of
constantly changing
regulation as
technology develops.

Lucy OCarroll
Its certainly not
a sideshow, but
the fortunes of the
constituents of the
FTSE100 are defined
by myriad factors.
The post-election
rally was predictably
short-lived, and we
tend to avoid buying
into such rallies. Its
far more sensible
to buy companies
with a much longer
term time horizon.

IFAmagazine.com

Burning Issues.indd 45

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17/06/2015 17:23

BURNING ISSUES

June 2015

Question 3:
The tough
pressure on
gilt yields has
been one of
the defining
characteristics
of the last
three years.
On the clear
understanding
that a month is
a long time in
the fixed interest
markets, do
you see any
easing of this
situation in the
coming seven
or eight months?
And what will
cause it?

Lucy OCarroll
We should not overlook events
on the international stage, and
in particular the prospective
reaction to US interest rate
rises, which will play a large
part in driving markets
in the months to come.
Rate hikes, in combination
with positioning unwinding;
shifts in sentiment about
global macroeconomic
prospects, including the growth
and inflation outlook; and
speculation over changes to
some central banks QE policies
(whether additional expansion
or withdrawal) could all
contribute to the continuation
of a more volatile bond market
environment than we have
been used to in recent years.

Tom Elliott
Gilts will benefit over the
coming weeks from pent-up
demand, as investors who
had put off buying ahead of
the UK election now do so.
The steady reduction in new
supply, as the government
closes the budget deficit, is a
long term positive factor.
However, gilt prices do not
just reflect domestic inflation

46

Burning Issues.indd 46

conditions and interest rate

policies. They are also highly
responsive to international
demand for high quality bonds,
and vulnerable to changes in
sentiment on the outlook for
global inflation and interest rate
policy elsewhere. It this aspect
that poses the greatest threat.
We have seen core
government bond markets
wobble recently (in May). I
suspect more wobbliness is
round the corner, waiting to be
triggered by any US economic
data that might confirm
analysts current expectations
of a Fed rate rise in September.
The combination of ultralow yields (and negative yields
in large parts of the short-dated
European market), coupled
with decreasing liquidity
in bond markets thanks to
quantitative easing programs
and demand from investors,
has created a nasty cocktail.
Prices could fall, and yields
rise, quite suddenly if we get
a run of better than expected
US economic data or signs that
the 55% increase in oil prices
since mid-January is feeding
its way into inflation pressures
in the developed world.

IFAmagazine.com

17/06/2015 17:23

June 2015

Question 4:

Tom Elliott

Corporate
profits eased
slightly in the
final quarter of
2014, although
they were still
handsomely
above 2013
levels. Will the
upward trend
continue this
year? What
would you
say are your
major worries?

Lacklustre Q4 2014 FTSE

100 profits reflected weakness
in the natural resources and
energy sectors, as commodity
prices fell, along with weaker
than expected exports that
have been blamed on slower
than expected demand growth
in the Eurozone and the US.

IFAmagazine.com

Burning Issues.indd 47

With energy prices looking

a little more robust (with Brent
at $65), and improving prospects
for the Eurozone economy, we
can expect an improvement in
profits this year. However, the
jump in the value of sterling
since the UK election will have a
negative impact on the sterling
value of overseas earnings.

Lucy OCarroll
The global economic picture
and outlook will continue

to drive gilt, currency and

equity markets, as they
did before the election. The
more prevalent risks include
the anticipation of US rate
normalisation, which will
most likely occur during the
second half of this year.
Even Janet Yellen,
US Federal Reserve
Chairwoman, has admitted
that the hikes could risk
some disruptive market
movements. This is a nearerterm risk. The various forms
of quantitative easing (QE)
and the waves of liquidity
which result from them are,
and have been, a significant
driver of all markets. Again,
this is a more immediate
concern. Concerns over
the unwinding of QE in
Europe will come later.

47

17/06/2015 17:23

June 2015

READER OFFER

Rugby World Cup 2015

Official Hospitality
Your chance to attend the biggest sporting event in 2015.
Register for more info and to be entered into a competition
to win tickets to the World Rugby Awards

Thinking of something
really special to treat your
favourite clients with this
autumn? Its easier than
usual this year, because
2015 marks the return to
England of Rugby World
Cup. Between 18 September
and 31 October the nations
stadiums will be roaring to
the tune of international
rugby at its very best.
And this year, with
thanks to Rugby World Cup
2015 Official Hospitality,
IFA Magazine is able to offer
our readers an opportunity to
win one of two pairs of seats
to the closing event, the World
Rugby Awards in London on
1 November. To be in the draw,
all you have to do is visit the
IFA Magazine website and
complete the application form.
And thats it. Good luck!
A Wide Range of
Hospitality Options
The official hospitality
programme for Rugby World
Cup 2015 presents a wide range
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2015 Official Hospitality offers
an excellent choice of packages
from relaxed shared spaces to
dedicated private experiences
with pricing options to
suit a range of budgets.

48

RWC 2015.indd 48

The extensive programme

covers all 48 games across
all 13 venues and includes
packages ranging from 245
per person for full hospitality
in a regional stadium to 1,320
per person for the biggest
matches including England
v Australia and the Final.
Why A Hospitality Package?
Aside from the obvious
entertainment highlights that
sport hospitality can afford
your guests, recent research
by SMG/YouGov sheds light
on the powerful marketing
and business development
returns that this activity can
generate. Hospitality at large
global sporting events provides
executives with an opportunity
to spend quality face-to-face
time with clients in a dedicated
space where they can enjoy
world-class sporting action
while developing relationships.
The study was designed
to gauge the effectiveness of
sport hospitality as a business
development tool by speaking
to 500 regular hospitality
purchasers and attendees.
The results were hugely positive
for hospitality and indeed the
sport of rugby: more than
93 per cent of senior business
decision-makers who regularly
attend hospitality believe that
corporate hospitality at the
Rugby World Cup in 2015 will be
extremely effective at improving

personal relationships between

businesses and their clients.
In fact, the majority of
these business decision-makers
indicated that they would choose
to purchase rugby hospitality
over a range of sporting and
entertainment options, including
international football, Formula
One, horse racing and music
concerts. Almost 60 per cent
of business decision-makers
surveyed also believed that
purchasing corporate hospitality
for RWC2015 specifically
would increase business
recommendations from clients,
and 71 per cent believed
that RWC2015 hospitality
attendees would be likely to
increase the amount they spend
with the hospitality buyer
on products and services.
The Best Seats at the Games
Away from the business benefits
of sports hospitality, Rugby
World Cup 2015 looks set to be
the most intriguing Tournament
yet. Pool A sees England, Wales
and Australia fighting it out
for only two places to advance
to the Quarter Finals where
a possible opponent would be
Tournament favourites South
Africa. On the other side of
the draw a Quarter Final with
France in Cardiff looms for
New Zealand, if they top their
group, in a repeat of 2007.
With over 2 million tickets
now sold, games taking place

IFAmagazine.com

17/06/2015 17:34

June 2015

World Rugby
Player of the Year
World Rugby
Team of the Year
World Rugby
Coach of the Year
World Rugby Referee
IRPA Try of the Year
World Rugby
Breakthrough
Player of the Year

at Twickenham are completely

sold out through the public
ballot. One of the only official
ways to access match tickets
now is through the official
hospitality programme.
The Hospitality Pavilions
As well as access to the best
seats at the biggest games,
a number of new package
experiences have been designed
to immerse guests in a Rugby
World Cup atmosphere and
make the experience truly
unforgettable. For matches at
Twickenham the enjoyment
will be taken up a notch
with the creation of two
completely new temporary
structures for the biggest
matches. These structures
are named the Twickenham
Pavilion and Champions Park
and are being constructed
specifically for England 2015.
Situated in the North
Car Park, the Twickenham
Pavilion is an interactive and
vibrant hospitality environment
only a short stroll from your
Category A tickets in the
East Stand of the stadium.
It will be the biggest created
for any Rugby World Cup,
standing nine metres high
and covering the area of one
and a half rugby pitches.
The inside of the Pavilion is
designed maximise a shared
entertainment area before an
informal dining experience.

IFAmagazine.com

RWC 2015.indd 49

Alternatively there is
Champions Park, located
adjacent to the stadium within
the ticketed perimeter. Four
separate restaurants will host
up to 500 guests and include the
best Category B tickets available
for matches at Twickenham.
To find out more about the
official hospitality programme
for Rugby World Cup 2015
please complete the form below.
As an extra reward anyone
that completes the form will
be entered into a competition
to win two pairs of tickets to
attend the World Rugby Awards,
taking place the night after
the Final in London.

WI N

World Rugby
Womens
Player of the Year
World Rugby
Sevens Player of the Year
in association with HSBC

World Rugby
Womens Sevens
Player of the Year
Award for Character
Vernon Pugh Award for
Distinguished Service
IRPA Special Merit Award

A PA I R O F
TI C K E TS TO T HE
W O R L D R U GB Y
AWA RD S 2 01 5

WWW.IFAM AGAZ IN E.CO M/

WORLDRUGBYAWARDS2015
49

17/06/2015 17:35

4 EXCITING EIS / SEIS OPPORTUNITIES

BROUGHT TO YOU BY INNVOTEC
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The seventh annual EIS Fund from the Innvotec / Anglo Scientific collaboration provides further opportunity for
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backingangloscientific
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C R E A TING SOLU TIONS

Anglo Scientific has built a portfolio, all EIS qualifying, of highly promising tech-enabled companies and Anglo Scientific
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The Startup Funding Clubs network ensures that opportunities are sourced from many of the UKs best regarded
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The OION 2015 SEIS Fund is an Innvotec-managed growth fund, providing private investors with an opportunity to
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Innvotec Limited is a registered company in England & Wales. Registration Number: 2030086
Innvotec Limited is Authorised and regulated by the Financial Conduct Authority.
VA0115

Exit Strategy - Bell Penny.indd 50

17/06/2015 17:37

E X I T S T R AT E G Y

A
Flexible
Exit
Picking the right exit strategy is probably
the biggest decision an IFA will ever
have to make. IFA Magazine
continues its series on retirement
options as Neil Martin talks to
Dominic Rose, Acquisition
Director at Bellpenny

When it comes to IFAs

enquiring about selling
their businesses, Readingbased firm Bellpenny has
seen a massive upturn
in interest. Its certainly
the busiest we have ever
been, from an acquisitions
perspective, says Dominic
Rose, who as Acquisitions
Director at Bellpenny is
charged with the task of
building the firm by taking
on individuals and firms.
The volume of enquiries
and the number of people
were speaking to has
increased significantly over
the first quarter of this
year. And actually, I see
nothing that is telling me
that its going to decrease
over the rest of this year.
Rose puts this down
to Bellpennys established
track record in acquiring
and integrating businesses
without losing the clients
who come with them. Most
importantly, he says, its

n:

115

June 2015

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Exit Strategy - Bell Penny.indd 51

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17/06/2015 17:37

June 2015

all about the clients. So

what does Bellpenny look
for in an acquisition?
Managing Expectations
IFA business acquisition
is all about the clients and
the clients fit with the
Bellpenny proposition,
he tells us. So thats the
key focus for us whenever
we look at a firm. What
do the clients look like in
terms of where they invest?
What are their average
portfolio sizes, what fees
are they paying, and how
does that all fit with us?
Similarly, what level
of service are they receiving
currently, and can we
demonstrate that the client
is going to get a better or
higher level of service from
us? Or at least a no worse
service. Because, clearly,
what you dont want to do
is buy a business and bring
clients in if that business
has been seeing clients on a
monthly basis for example
whereas we see clients
twice a year. So its all
about making that fit in the
service proposition, and the
investment proposition.
Fee Structures and Fit
The fee structure is also
important. It is more
attractive to us, as buyer
of IFA businesses, where
the clients recurring fee
charging structure is 0.5%,
or less. Businesses that
are charging more than 1%
wouldnt be appropriate
for us, because wed end
up reducing the fees the
client pays, so youre going
to have an immediate
drop-off in revenue.
Rose explains how
Bellpenny goes about
identifying the firms and
individuals the firm can
work with. We do a fair bit
of desktop research, and
word of mouth based on
whether we think a firm is
going to be a good fit with us,
and we may well and go and
approach them - but more

52

Exit Strategy - Bell Penny.indd 52

E X I T S T R AT E G Y

often than not actually, were

getting approached now.
So we will have people
getting in touch with us
directly, saying that they
are considering their options
and that they want to retire
for example and they are
looking for a safe home for
their clients, so lets have
a chat. Then again, we get
individuals going to brokers
and then the brokers will
approach us. We are also
doing some limited direct
contacting of IFA business
that we think would be
appropriate for us.
So what does Bellpenny
prefer, an IFA who heads
into the sunset, or one who
prefers to hang around?
We accommodate both. So
if someone wants to leave
and wants to go and lie on
a beach early, what we ask
is that they effect face-toface handovers of all of
their clients to Bellpenny
financial planners.
It sounds like a beauty
parade, but well put an
array of financial planners
in front of the adviser, you
can then match up the right
personality with their clients.
What we dont do is just
draw a circle around a group
of clients and say theyre
going to this adviser. We try
and match up personalities
of advisers with the
personalities of the clients.

or anything like that. Its

not a jam-later proposition,
its very much that we like
to give certainty over the
payments that a business
owner can receive.
Typically we pay over
a period, probably over two
to three years, although
weve done some over longer
periods. But, theyre all
cash considerations, paid
in instalments, typically
contingent on recurring
revenue being received.
The Advantages?
Firstly, its a safe home for
the clients that are going to
be looked after, says Rose.
Theres no point selling
a business to someone
that is going to mess your
clients around, or try and
shaft your clients into an
expensive proposition.
Secondly, it provides
certainty over payment
for your business, because
we are cash buyers with
strong financial backers.
That gives our partners a
certainty over the value of
the business that theyve
built up over a number
of years and with the
confidence that their clients
are going to be looked after.
RDR Is Over Now What?

The Proposition?

As for whether RDR has

actually helped IFAs look
more attractive as a business
proposition, Rose is clear.
I think thats exactly
right, its moving us all
into a more professional
set-up. Thats not to say
that the adviser profession
wasnt professional before,
but I dont think we were
professional enough,
and thats what I think
RDR has done quite well.
Nowadays firms consider
their proposition, define
themselves better, and
get their management
information in order.

Asked about the business

model, Rose explains: We
are cash buyers. Its not a
share for share exchange

Given that firms have

got their house in order and
see their value, the obvious
question now is whether

Staying On?
What happens if a retiring
IFA (or his staff) want to
stay with the operation?
They can come and join
us,, says Rose, but on an
employed basis. We dont
have any self-employed
financial planners, you see.
And theyll need to adopt
the Bellpenny way of doing
things. They have to be what
we call a Bellpenny person.

IFAmagazine.com

17/06/2015 17:37

this is the end of the small

firm? Rose thinks not.
Everyone predicted that
after RDR, that was it, there
would be no small firms
left, and thats certainly
not the case now. Certainly
youll see more firms like
Bellpenny consolidating
in the sector, but there is
always going to be a space
for smaller IFA businesses.
Youve got advisers
looking after clients in their
own area, and clients are
always going to want their
local adviser, and thats
going to breed businesses.
The total number of small
businesses will decline, but
nothing to the extent of that
was originally foreseen.
Enter the Life Companies,
Stage Left
As for the future of
individuals retiring and
firms selling out, the next
big trend according to Rose
is the entrance of the life
companies into the arena:
The one trend in the
industry at the moment
is the entrance of the life
companies coming in to the
market - which is maybe
helping peoples perception

that its a competitive

acquisition space, and that
people looking to sell can
secure good multiples for
their business.
To that extent, new
entrants into the wealth
management space are
driving up purchase
price multiples.

The Bellpenney IFA Retirement Offer At a Glance

n Its all about the clients fit with the Bellpenny proposition
n Focus on clients - where they invest, portfolio
sizes, fees and level of service
n A Preference for clients with existing
fee structure of 0.5%, or less
n Bellpenny can accommodate IFAs who want to head
for the beach, or who commit to a longer handover
n Its not a jam-later proposition - we like to provide
certainty over the payment schedule.

For more info or for a confidential introduction to Bellpenny, please email hr@ifamagazine.com
or speak to our Publishing Director on 07974 708771

IFAmagazine.com

Exit Strategy - Bell Penny.indd 53

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Compatibility: Requires IOS 6.0 or later. Compatible with iPhone, iPad, and iPod touch. This app is optimized for iPhone 5. Available on Android.
Aviva
Investment
Doctor.indd
54
IFA Magazine
App.indd
1

Twenty Four Seven

IFA Magazine, Britains premier online
portal and print publication for
financial advisers, has launched its ver y
own app designed to help you stay
up to date with all the latest financial
and economic news as it happens.

Main
Features:
Reviews
Features
Funds
Market and Economics
Trading Expert
FCA
Compliance
Jobs

17/06/2015
21/11/2014 17:38
09:43

INVESTMENT DOCTOR

June 2015

VIX and Volatility

How Useful Is VIX?
The VIX Index is a wellknown measure of volatility,
used by professional and
private investors alike.
However, it does have a
comparatively tight remit, so
its only useful to a degree,
one of the many sign-posts we
can look out for, but not one
on which to rely exclusively.
VIX is the technical
moniker for the Chicago
Board Options Exchange
Market Volatility Index and it
measures the implied volatility
of the S&P 500 index options.
Which means it measures the
markets expectations, over
a forthcoming period of 30
days, of market volatility.
The Fear Index
Is that all? Just a poll of
future expectations in a single
American market? Yes, pretty
much. So you can see its
usefulness and its constraints
quite quickly. It might often
go by the name of the fear
index, or the fear gauge, but
at the end of the day its linked
to the S&P500, and to options
trading, which is a minority
sport at the best of times. So,
despite its sometimes grandiose
title of the fear index, its just
a representation of sentiment
among options investors who
are themselves (by definition)
looking out into the future.
In the same way that the
FTSE100 is only an index
which tracks its constituents
fortunes (and does not suffer
mood swings, despite the
best efforts of the newspaper
headline writer), so the VIX
is based on a formula which
tracks trades. It has no
sense of foresight, or
indeed insight.

IFAmagazine.com

09:43

Aviva Investment Doctor.indd 55

Good, so weve got that

straight. But the VIX also has
its detractors who argue that
the VIX is not even a proper
index, but just a survey of the
expectation of volatility over the
short-term. Its a number it
doesnt have even the makings of
a portfolio in any shape or form.
Instead, what the VIX really
reflects is those institutional
investors who choose to hedge
their market positions by the use
of options. A small club indeed.
But thats not to downplay its
role because institutional
investors do take heed of the
index. But they see it as part
of the armoury of weapons that
they have at their disposal; a
part of the overall jigsaw.
The biggest danger is
that people will make the
mistake, sometimes egged on
by the media, to see the VIX
as a measure of actual market
volatility. Which it plainly is not.
VIX is a measure of the price of
volatility - not the volatility itself.
A Fickle Friend
People often buy options when
they want to protect against a
downside, and so it shouldnt
surprise that more of them are
bought when worries increase.
You can see where that argument
is going. The VIX can double in
days if the mood is right/wrong.
Last October it exceeded 25, and
even in January it was 21; in
May 2015, however it was
closer to 12. Just think
how much you could have
lost in that time
by calling the
VIX wrong.

But the point is that

the VIX is interpreted in
different ways by professional
investors, who track the index
and who see where it was
at particular times of stress
and then come to their own
conclusions as to how they
read the Index in future.
Can You Invest in the VIX?
It is also worth pointing
out that although the VIX
is not an investable thing
in its own right, there are
derivative products based
upon it. These include VIX
futures based exchange-traded
notes and exchange-traded
funds, such as the S&P 500
VIX Short-Term Futures
ETN and the S&P 500 VIX
Mid-Term Futures ETN.
So, in short, yes the
VIX has its uses and can be a
useful barometer of volatility.
But, and this is important,
it should be seen more as a
basic platform to which you
can add your own bells
and whistles. It paints a
picture, certainly, but
one that maybe only
uses the secondary
colours; it does not
provide the primary
colours.

55

17/06/2015 17:38

June 2015

MiFID Who?
Time to Start Thinking About the New Regime, Says
Compliance Consultant Lee Werrell. Well, Assuming
Were Still in Europe in Two Years Time...

Just in case you didnt

notice, the world of
European financial
marketing was
transformed yet again
last year by the arrival of
MiFID II, which changed
many things about the
existing MiFID regime.
Whats that you say? The
changes havent come into force
yet? Well, youre right on that
score the full introduction
of MiFID II doesnt happen
until January 2017. But were
in the transitional stage now,
and any planning for the
changes needs to be happening
right now. And it needs to be
led by senior management.
The Consultative Process
As youd expect, MiFID II
contains both changes and
enhancements to the original.
MiFID II entered into force
on 2 July 2014 and we are
required to transpose it by
July 2016 with its provisions
to take effect no later than
on 3 January 2017.
Accordingly, the regulator
is currently looking for
responses from a range of
firms and other stakeholders
on a range of implementation
issues, mainly focusing on
retail conduct of business
parts of MiFID II, so as to
assess the levels of feedback
and concerns with a view to
developing their policy options
ahead of formal consultation
later in 2015 on the whole
range of MiFID II changes.
DP 15/3: Developing Our
Approach to Implementing
MiFID II Conduct of

56

Compliance Doctor.indd 56

Business and Organisational

Requirements discusses the
implications of certain MiFID
II conduct of business and
organisational requirements
for firms, primarily contained
within Articles 24 and 25.
But it goes further than that.
There are also discussions of
certain changes that the UK
needs to make to its domestic
rules so as to implement the
new minimum regulatory
framework required under
MiFID II for firms exempt from
MiFID II (Article 3 exempt
firms). There are a high
level suggestion for options
for alternative domestic
criteria for the categorisation
of local authorities.
Who Needs to Pay Attention?
In the words of the FCA,
the intended audience for
DP 15/3 consists of:

n Discretionary investment
management firms;

n Financial advisers;
n Local authorities, and
firms that conduct business
with local authorities;

n Stockbrokers and others

that provide personal
recommendations to their
clients on shares, bonds
and/or derivatives;

n Firms providing services in

relation to insurance-based
investments and pensions;

n Firms currently exempt

from MiFID II under
Article 3.
MiFID II also addresses
conduct of business and
organisational standards. Some
of these new requirements

strengthen existing rules,

such as tightening rules on
inducements, while other
measures put in place new
rules covering areas such as
product governance, recording
of telephone conversations and
electronic communications,
sales staff remuneration, and
the application of conduct
of business standards to
structured deposits.
The Clocks Ticking
The timescale is already well
advanced, as youd suppose.
And it looks like this:

n Summer 2015 - Feedback

from DP15/03 26 May

n EU legislation on MiFID
II implementing measures
is adopted and formal
approval process begins

n October 2015 - FCA

MiFID Conference

n December 2015 Consultation on

implementing MiFID
II requirements

n Early 2016 - EU
legislation on MiFID II
implementing measures is
finalised and published

n June 2016 - FCA Policy

Statement (rules)
on implementation
of MiFID II

n 3 January 2017 - MiFID

rules come into effect for
all investment firms.
So What Are The
Major Changes?
One major challenge is the
treatment of structured
deposits. These are currently
regulated through the

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17/06/2015 17:40

COMPLIANCE DOCTOR

Principles for Businesses and

Banking Conduct of Business
sourcebook (BCOBS), which
contains rules and guidance
on how these products should
be promoted and sold. MiFID
II brings them into scope of
the range of existing conduct
of business and organisational
rules that currently apply to
investment business through
the Conduct Of Business
Sourcebook (COBS).
The Commissions work
in developing the PRIIPs
Regulation also includes
structured deposits in its scope
by virtue of their delivering
the same economic function
as other investment products
and this would suggest that a
consistent regulatory regime
for these products would
help to prevent distortions
in competition and prevent
regulatory arbitrage.
Receipt of Commissions and
Other Benefits for Discretionary
Investment Managers, As
Applied to Retail Clients
Portfolio management is an
investment service within
the scope of MiFID II,
and many of our domestic
conduct of business rules for
discretionary investment
managers are derived from
MiFID I. These rules apply
various requirements to the
conduct of such business
including in relation to
client categorisation,
communications and financial
promotions, suitability
assessments and reporting
and disclosure requirements.
Many of MiFID IIs
requirements involve updating,

IFAmagazine.com

Compliance Doctor.indd 57

where necessary, existing

conduct of business obligations.
These include updating the
relevant requirements for
suitability assessments, and
pre and post-sale reporting.
Some obligations however
are new, and firms are likely
to need to develop systems and
make organisational changes
to ensure compliance. Firms
should particularly note the
requirements relating to the
remuneration of sales staff
and the likely new restrictions
on the nature of acceptable
third party inducements.
MiFID II bans
discretionary investment
managers from accepting
and retaining third party
commissions, fees and
monetary and non-monetary
benefits13, effectively applying
requirements similar to aspects
of the RDR adviser charging
rules to DIM activities.
However, unlike our RDR
rules applicable to investment
advisers, MiFID II allows
discretionary investment
managers to receive payments
from third parties if these are
passed on to clients in full (in
effect allowing rebating).
While MiFID II bans
retaining third party
commissions and other
benefits, it allows firms
to accept these payments,
provided these are rebated
these back to the client
as soon as possible after
receipt. The regulator wants
opinions on how this would
affect consumer outcomes
for the positive or negative.

June 2015

Categorisation of Professional
Clients (Including Treatment
of Local Authorities)
Under the existing regime
for MiFID business, the
FCAs position is that a local
authority may be categorised
as a per se professional client
if it meets the existing MiFID
test for large undertakings
in COBS 3.5.2 R (2). Where
a client, such as a local
authority, does not fall
within one of the categories
of client who are considered
to be professional per se, it
is by default categorised as
a retail client. As a retail
client, it has the ability to
request to be treated as
an elective professional
client where it meets the
specific opt-up criteria.
MiFID II puts a
particular focus on increasing
protections for local authorities
and municipalities. This
changes mean that it is
no longer possible to treat
local authorities as per se
professional clients on the
basis of meeting the large
undertakings test and so COBS
3.5.2A R must be amended.
MiFID II categorises some
local authorities as retail
clients with the ability to
request to opt-up to elective
professional status where
they meet the qualifying
criteria. However, MiFID
II gives Member States the
discretion to adopt specific
alternative or additional
criteria for the assessment of
the expertise and knowledge
of local authorities requesting
to be treated as elective

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17/06/2015 17:40

June 2015

professional clients.
The financial crisis
and alleged mis-selling
practices involving local
authorities (e.g. in France,
Italy and the UK) revealed
that some local authorities
may not fully appreciate
the risks they are exposed
to, especially in the case of
complex financial products.
Independent Financial
Advice? Whats That?
MiFID II introduces a
European-wide standard for
independent advice for the
first time. This focuses on
ensuring that firms offering
independent advice do not
limit the products considered
to those of the advisory firm,
or firms with close links to the
advisory firm, to prevent any
potential bias that may occur.
MiFID II requires firms
offering independent advice
to assess a sufficient range
of different product providers
products... prior to making a
personal recommendation.
The key difference here is
that ESMAs technical advice
suggests that independent
advisers should consider
a range of financial
instruments proportionate
to the scope of advice, and
adequately representative
of the products available on
the market. The existing
independence requirements of
the FCA cover all RIPs, which
include investment products in
scope of MiFID II (structured
products and UCITS), and
some products outside of scope
(insurance-based investments
and personal pensions).

58

Compliance Doctor.indd 58

COMPLIANCE DOCTOR

However, the EU consider it

proportionate to include shares,
bonds and derivatives in their
definition of instruments.
Remuneration of Staff
This contains no big surprises
as it is along the lines of
already published guidelines
and ESMAs technical
advice contains specific
measures that include,

n ensuring that firms do

not create remuneration
policies that create
incentives that may
lead relevant persons
to favour their own
interests or the firms
interests to the potential
detriment of any client;

n ensuring management
approval of a firms
remuneration policy,
and for the day to day
monitoring of this policy
to be the responsibility of
senior management; and

n for remuneration or similar

incentives not to be solely
based on quantitative
commercial criteria, but
instead take into account
appropriate qualitative
criteria reflecting the fair
treatment of clients and
the quality of services
provided to clients.
Telephone Recording
One of the new organisational
requirements under MiFID
II Article 16(7), the recording
of telephone conversations or
electronic communications
of certain transactions and
which is articulated in Article
16(7) does not exist in the

current domestic framework

for those Article 3 firms that
are retail IFAs and boutique
corporate broking firms.
This article specifies
the need to record certain
telephone conversations and
electronic communications,
including, at least, transactions
concluded when dealing on own
account and the provision of
client order services that relate
to reception, transmission
and execution of client orders,
but also those conversations
that are intended to
result in a transaction.
Conclusion
None of this should be new, as
your compliance professional
would have alerted you to
these impacts already, but
what is important is that
you consider the impacts
and respond to the regulator
before the deadline 26th May
2015. Secondly you consider
any of the contents of the DP,
including the parts we have
touched on in this article, to
identify any potential hotspots
you will need to address when
the final rules are published.
Record these processes and
any dependencies for later
analysis when the final rules
are released next year.
If you have any issues with the
MiFID II changes, please refer
to your qualified Compliance
Professional or go to www.
complianceconsultant.org
See also the listings of the
latest FCA Publications
on Page 60

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COMPLIANCE DOCTOR

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June 2015

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June 2015

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

FCA Publications

OUR MONTHLY SUMMARY OF THE LATEST OFFICIAL PUBLICATIONS

Fair, Reasonable and
Non-Discriminatory Access
to Regulated Benchmarks
Consultation Paper
Ref: CP 15/18
3 June 2015
18 Pages
This Consultation Paper is
aimed primarily at benchmark
administrators but is considered to
be of interest to financial institutions
and, ultimately, consumers too.
PS15/6, published earlier in the
year, contained the regulators
final rules for regulating and
supervising the seven additional
benchmarks coming into
regulatory scope, following
recommendations by the Fair and
Effective Markets Review and the
Treasurys subsequent consultation
on the recommendations.
However, concerns
have persisted regarding
the unconstrained ability of
administrators to set the prices
of benchmarks, and accordingly
the FCA has called for comments
about further amendments
and additional rules.
Consultation period ends
on 3 August 2015
Capital Resources Requirements
for Personal Investment Firms (PIFs)
Consultation Paper
Ref: CP 15/17
28 May 2015
54 Pages
The FCA is proposing to
change the current capital
resources rules for PIFs.
The reasoning behind the move
is that the original rules drawn up by
the Financial Services Authority in the
light of RDR had not delivered the
desired level of assurance that PIFs
would be sufficiently able to deliver
on their longer-term commitments.
Following subsequent feedback,

60

FCA Publications and IFA Calendar.indd 60

the FCA deferred implementation

of these rules pending further
review, which this consultation
paper sets out to achieve.
As previously, the aim remains
to require a proportionate level
of capital resources for PIFs
to absorb routine losses and
legitimate redress claims against
them, as well as to provide time to
make appropriate arrangements
in the case of market exit.
Consultation period ends
on 7 September 2015
FCA Publishes Terms of Reference
for its Investment and Corporate
Banking Market Study
Press Release
Ref: FCA/PN/59/2015
22 May 2015
The FCA) has set out the issues it will
focus on as part of its market study
into competition in investment and
corporate banking. The study, it says,
will focus on choice, transparency,
bundling and cross-subsidisation
in debt and equity capital
markets, mergers and acquisitions
and acquisition financing.
It will also consider links between
competition in these primary market
services and related activities
such as corporate lending and
broking, and ancillary services.
Primary focus areas include:
n Transparency, particularly
the transparency of the
allocation process in debt
and equity issues and the
impact of established
market practice and
regulations on transparency
in the IPO process.
n Client choice and
behaviour and the
impact of syndication.
n Assessing whether and
how bundling and
cross-subsidisation
affects competition.

n The potential benefits

of reducing regulatory
barriers to firms entering
or expanding into
primary markets.
Provision of Premium Finance
to Retail General Insurance
Customers and Final Rules
Thematic Review
Ref: TR 15/5
11 May 2015
18 Pages
The report looks into whether
general insurance intermediaries
and insurers provide information
to their customers, when
arranging premium finance.
The regulator says that it was
concerned that, if firms are
not meeting the information
needs of their customers, then
those customers might not be
achieving fair outcomes when
choosing to pay in instalments
when buying insurance.
The research included a review
among 43 firm websites, looking
at insurers and intermediaries
online sales journeys up to the
point where the customer was
required to input their payment
details. The findings, the FCA says,
highlight that there is an increased
risk that customers may not be
achieving fair outcomes when
purchasing insurance and linked
finance. The shortcomings in
information may act as a barrier
to informed decision making as
customers may, for example:
n Not realise the additional
cost of choosing to
pay by instalments
n Struggle to compare
pricing
n Enter into premium
finance arrangements
without understanding the
key features, terms and
risks of the agreement.

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June 2015

Guidance on Financial Crime

Systems and Controls
Finalised Guidance
Ref: FG 15/7
27 April 2015

requires that a firm operating

an MTF must have transparent
and non-discretionary rules and
procedures for fair and
orderly trading.

4 Pages

Retirement Income Market Study

In November 2014 the FCA

consulted on proposed
examples of good practice
from two thematic reviews that
considered small banks antimoney laundering and financial
sanctions, and small commercial
insurance brokers anti-bribery and
corruption, systems and controls.
It also proposed amendments
to our guidance to clarify our
expectations in some areas
where significant weaknesses
persist. These examples are to be
incorporated in a new regulatory
guidance, Financial crime: a
guide for firms, which will set out
its expectations of firms financial
crime systems and controls.

Market Study

The guidance takes effect

on 27 April 2015
The FCA has also published a statement
(http://tinyurl.com/osmr74u) about its
expectations in relation to derisking.

Multilateral Trading
Facilities (MTFs)
Thematic Review
Ref: FG 15/6
15 April 2015
15 Pages
This Guidance follows on from
Guidance Consultation GC14/9
(December 2014), which set
out the FCAs Good Practice
Observations relating to MTF
operator rulebooks. The regulator
has considered the responses
and is now publishing Finalised
Guidance FG15/6 which sets out:
n A summary of feedback
received and the
Regulators response.
n Changes to the guidance.
n Finalised guidance.
The finalised guidance sets
out the key MAR 5 requirements
and the FCAs Good Practice
Observations relating to
MTF operator rulebooks.
In particular MAR 5.3.1
(Trading Process Requirements)

IFAmagazine.com

FCA Publications and IFA Calendar.indd 61

Dates
Diary
for your

26 March 2015

JUNE 2015

In March 2015 the FCA

published the final findings of its
retirement income market study
and its proposed remedies.
The final findings set out the
FCAs conclusions on the
effectiveness of competition in
the retirement income market
and the remedies on how
it intends to intervene in the
market to make competition
work better for consumers.
The FCA says it has have
confirmed its provisional
findings that competition in
this market is not working well
for consumers; in particular:
n Many consumers are
missing out by not
shopping around for an
annuity and switching
providers, and some
do not purchase the
best annuity for their
circumstances.
n Consumers are deterred
from engaging with
their options by the
length and complexity
of wake-up packs,
or because they do
not believe the sums
involved make shopping
around worthwhile
n Consumers tendency
to buy products from
their existing provider
weakens competitive
discipline on incumbent
firms and makes it
harder for challenger
firms to attract a critical
mass of customers
n Consumers are highly
sensitive to how options
are presented to
them. Savers reaching
retirement will face a
landscape that is more
complex and will need
support in making
the right choices.

25

Consultation period
ends for DP 15/13
(General Insurance Addons Proposed Remedies)

29-30 Forum on Industrial

Organisation and
Marketing 2015
Lisbon, Portugal

JULY 2015
4

Luxembourg assumes
the EU Presidency

Royal Henley Regatta

Henley-on-Thames, Oxon

22

European Securities
and Markets Authority
(ESMA) publishes
an opinion on the
passport for European
alternative investment
fund managers
(AIFMs) managing and
marketing EU alternative
investment funds (AIFs)

23-26 Americas Cup

Portsmouth, Hants

AUGUST 2015
7

ESMA revised guidelines

on the Markets in
Financial Instruments
Directive (MiFID)
come into force
To be superseded
by MiFID II in 2017

HAVE WE FORGOTTEN ANYTHING?

Email editor@ifamagazine.com

61

17/06/2015 17:41

Technical Advisor
The Role

The role of the Technical Advisor is to support the

Financial Planner in informing and advising Clients
on financial strategies, plans and products.

Compiling financial planning recommendations

and advice reports

Providing support for the Financial Planner to

allow the Financial Planner to focus on Client
relationships and meeting business targets

Ensuring that all regulatory and compliance standards are met

Liaising and building professional relations with

product providers and other relevant third parties

Ensuring that all Client requirements are followed

through to the appropriate conclusion

Managing the preparations for client annual

reviews on behalf of the financial planner

Key Responsibilities and Outputs

n

Supporting the Financial Planner in research and

analysis to meet the Clients needs and objectives

Supporting the Financial Planner in preparing

Client Financial Plans and Advice Reports

Developing and maintaining internal relationships to help

maintain business flow and meet agreed targets

Promoting the profile of Trentham Invest within

the profession and wider communities

Continuous professional development to meet regulatory

requirements and personal development needs

Ensuring that any business conducted is done in a

responsible and compliant manner, meeting all legislative
requirements, both internally and externally

Nature and scope of responsibilities

Reports to:

Technical Manager

Direct Reports:

None

In particular, the role holder will have primary responsibility for:

n

Managing and supporting the Technical Administrator

The technical aspects of preparing for Client meetings including:

Overseeing the collation/collating any financial

data from the client or third parties

Financial data analysis

Analysing Client data and preparing cash flow analysis

Overseeing the research/researching any

products to support recommendations

Assisting the Financial Planner with Client presentations and

any other activities as agreed with the Financial Planner

Provide support and information in order for

Trentham Invest to deal with any client queries,
with the aim of exceeding their expectations

Individual workflow and task delivery

Assisting the Technical Manager with annual

technical reviews of services and products

The role holder may be required to travel for Client visits.

This may involve working outside office hours.
The role holder will keep up to date with legislative and
industry changes which affect the business and its Clients.
The role holder may from time to time be required to
undertake reasonable additional or other duties as is
necessary to meet the needs of the business.
Salary: c35k+ depending on experience

trenthaminvest.co.uk
Thinkers.indd 62

17/06/2015 17:41

Investing in our future to better help our clients invest in theirs

Client Service Manager Ongoing Client Monitoring

The Role

Nature and scope of responsibilities

The role of the Client Service Manager Ongoing Client Monitoring

is to assist in providing administrative and technical support to
the Technical Advisor within the business.

Reports to:

Technical Manager

Direct Reports:

None

Key Responsibilities and Outputs

n

Supporting the Financial Planner in preparing for review meetings

Supporting the Financial Planner in the

implementation of post-review communications

Support the Financial Planner in the

preparation of client valuations

Support the Financial Planner in the ongoing

maintenance of client records

Support the Financial Planner in client review meetings

Developing and maintaining internal relationships to help

maintain business flow and meet agreed targets

In particular, the role holder will have primary responsibility for:

Contributing to the smooth running of the technical

administrative function within the business

Promoting the profile of Trentham Invest within

the profession and wider communities

Continuous professional development to meet regulatory

requirements and personal development needs

Ensuring that any business conducted is done in a

responsible and compliant manner, meeting all legislative
requirements, both internally and externally

Managing, recording and monitoring Client annual

reviews on behalf of the Financial Planner

Managing ongoing business processing:

Recording changes to client data

Preparing for review meetings

Completing ongoing client compliance checklists

Tracking and concluding investment management portfolios

Communicating and recording financial contract maintenance

Liaising with product providers and other relevant third parties

Individual workflow and task delivery

Assisting the Technical Analyst in respect of:

Preparing paperwork for client review meetings

Planning and product research

Technical filing on to business systems

The role holder will keep up to date with legislative and

industry changes which affect the business and its clients.
The role holder may from time to time be required to
undertake reasonable additional or other duties as is
necessary to meet the needs of the business.
Salary: c24-28k

Inscape House, Ansell Road, Dorking, Surrey RH4 1QN

Telephone: 01306 881999 Fax: 01306 881699
Email: enquiries@trenthaminvest.co.uk

Thinkers.indd 63

17/06/2015 17:41

Independent
Financial Adviser
Fordingbridge, Hampshire
The Wealth Care Partnership (TWCP) is currently
seeking high calibre IFAs to join their expanding
team. Based in a rural setting in the New Forest,
10 miles from Salisbury, they are currently taking
the business to the next level. Seeking professional,
ambitious IFAs to share in their success and who
want to be part of an award-winning and dynamic
team. As they enter this exciting period of growth
it is important to TWCP that they attract IFAs who
share their values, put their clients first and provide
the best financial solutions according to their clients
individual needs.
TWCP encourage applications from IFAs with proven
success in their field. They are willing to consider
different employment structures including salary
based and self-employed contracts with rewarding
financial packages on offer.

In addition there may be the opportunity for a discretionary

bonus structure and in the future, an equity stake in the
business for the right candidate.
For the successful candidate, a robust infrastructure with
a high level of administration, paraplanning and business
support, including strong marketing and lead generation
will be available.
TWCP was established with a vision to build a centre of
excellence with a focus on a clear goal; to give personal
quality advice and guidance to people serious about
maintaining financial independence and protecting their
assets in later life. Since being established in 2007 the
business has grown substantially. The firm has been
shortlisted every year since 2007 for the Health Insurance
Awards and has won the Best Long-Term Care Intermediary
award four times being the current winner for 2014.
The team have utilised their combined experience to
become pioneering leaders in the field of later life advice
and their current advisers are members of the Society
of Later Life Advisers (SOLLA) which is accredited by
the Financial Services Skills Council.
The role will specialise in holistic financial planning for
affluent clients on investments and tax planning, so proven
relationship management experience within an IFA role
and a broad knowledge of financial services is essential.

The ideal candidate will be an established, professional IFA with an existing client base or the
potential and ability to build one. You will have experience of writing high levels of business
and in addition be able to demonstrate:

A high volume of trail income;

The ability to sustain and nurture

long-term relationships;

Experience in client advice which

is compatible with TWCPs services;

The ability to challenge constructively;

Seminar experience would be

advantageous, but of more importance
is the confidence to present and network
with individuals and groups.

Capability to work with the support

team in a collaborative way;

The inter-personal skills required to deal with

complex family dynamics and older clients;

To discuss this role, in confidence, please contact Sam at Tamar HR on 01579 343700
(sam.davey@tamarhr.co.uk) or to apply please send a CV and covering letter to jobs@tamarhr.co.uk
Thinkers.indd 64

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THINKERS

June 2015

Black Swan
Nassim Nicholas
Taleb
Born 1960 in
Amioun, Lebanon

Anti-Volatility
The famed author of The
Black Swan (published 2007,
revised 2010) is entitled to be
a little annoyed at the focus
that the world has applied
to his seminal work. In his
view, it forms only one part of
a four-book oeuvre in which
he explores issues relating
to the risk vulnerability of
mainly financial markets,
and the necessity of creating
systems that are proofed
against unpredictable shocks
of every type. While also
being able to exploit any
positive opportunities that
may arise from these events.
Breaking the mould
Raised in a Greek Orthodox
Lebanese family with French
connections, and educated in
Paris and then the United
States, Talebs exposure to
British, French, Arabic, Greek
and other cultures may have
helped to create the open-ended,
multidisciplinary approach which
forms the basis of his thinking.
At various times, when
not engaged in philosophy,
he has been employed as a
mathematician, a writer,
an arbitrage and currency
options trader at Credit Suisse,
Indosuez, Deutsche Bank and
First Boston, and the founder
of two investment companies.
He is currently co-Editor in
Chief of the academic journal,
Risk and Decision Analysis, and
lectures in London and California
while also advising at the
International Monetary Fund.
The Black Swan theory
Black Swans can be best
described as non-computable

IFAmagazine.com

Thinkers.indd 65

Currently living in
Santa Monica, California

But nobody is forcing us to

be so blind. Taleb says that what
might be a Black Swan surprise
for a turkey will not be a surprise
at all to the butcher who kills it:
thus, the aim of business is to
identify areas of vulnerability that
can turn the Black Swans white.
The Incerto

If you hear a prominent

economist using the
word equilibrium, or
normal distribution, just
ignore him, or try to put
a rat down his shirt

but ground-moving events

that occur without warning or
explanation, beyond the realm of
normal expectations in history,
science, finance, and technology,
and which permanently alter
the balance of the status quo.
Were talking about events such
as wars, the internet, the 2001
Twin Towers attacks, and almost
all major scientific discoveries.
Between them, he says, these
Black Swan events have been
more historically important than
any regular developments. The
reason they are so destructive
is largely that human beings
set up their structures in ways
that are not-shock-proof, and
which demonstrate a certain
lack of courage and imagination
on mans part. The fact that
Black Swans are a problem
at all stems from the use of
degenerate metaprobability.

Well run out of space here

before we can do justice to
the interactability of Talebs
four main theses better,
probably, to refer the reader to
the Incerto website at www.
fooledbyrandomness.com,
which lays out a schematic view
of the way they work together.
Fooled by Randomness (2001)
was an early attempt to explore
the way that man underestimates
the role of randomness in life:
coming at the time of the 9/11
attacks, it found a ready success
which led on the full exposition
of the Black Swan theory in
2007. (Revised 2010.) Some
reckon that it anticipated the
banking and economic crisis
of 2008 by pointing up how
financial institutions were
hidebound, complacent and not
geared toward risk tolerance.
Exploiting Uncertainty
The Bed of Procrustes (2010), a
book of philosophical aphorisms,
finally led on in 2012 to
Antifragile, which explores ways
of exploiting change. Some
things benefit from shocks; they
thrive and grow when exposed to
volatility, randomness, disorder,
and stressors and love adventure,
risk, and uncertainty
Antifragility is beyond resilience
or robustness. The resilient
resists shocks and stays the same;
the antifragile gets better.

65

17/06/2015 17:41

T H E OT H E R S I D E

June 2015

The R Word
As the clamour of the election battle fades away,
Richard Harvey asks some reflective questions
The philosophical
dividing line between the
Conservative and Labour
parties prior to that
spectacularly surprising
general election was, as
always, the relative attitudes
towards the The Rich (also
known as The Privileged
Few, or, depending which
left wing media you read,
The Enemy of the People).
While Ed Miliband stoked
up Labour fury towards anyone
perceived to have more than a
maisonette and a second-hand
Corsa, Cameron & Co stayed
well away from the R word,
lest they were seen to favour
pin-striped City boys with
six-figure bonus packages.
As someone who has spent
his career as a scribbler and
publicist, I understood the fact
that elections are won by the
party which most effectively
rubbishes the opposition with
clear, simple messages (hence
Vote Ed, get the SNP, and
Would you trust the economy
to the party which trashed
it in the first place?).
Whos Paying the Taxes?
The trouble with election
messages is that they leave
unspoken some of the most
important information that
might enable the voter to
make an informed choice.
For instance, millions of
voters would have roundly
condemned the fact that the
top 0.1 percent of UK earners
- all 30,000 of them - earn five
percent of the nations income.
How can that possibly be fair
or just? they would chorus.
But if you add in the fact
that these wealthocrats also
pay more than 11 percent of the

66

The Other Side.indd 66

nations entire income tax, and

that the NHS and other public
services would collapse without
them, they might understand
why Peter Mandelson once said
he was intensely relaxed about
people getting filthy rich.
Blurring Boundaries
While most IFAs arent lucky
enough to look after the
investment portfolios of earners
in the top 0.1 percent, they
may well have clients who
earn more than 150,000 a
year (and theres a few NHS
Trust and local authority
execs on that kind of income,
but dont lets go there...).

who have a talent for making

money, its not an unblemished
picture of freebooting capitalism.
But then, there are plenty of
independent IFAs who already
appreciate that. As freelancers,
they have always been on a
form of the much-vilified zero
hours contracts which Labour
was threatening to regulate.
And presumably are among
the two thirds of those on
those on zero hours contracts
who, according to the Office for
National Statistics, describe
themselves as
happy!

Those clients need to be

reminded that in less than two
years time a measure is being
introduced by the new Tory
government of which the two
Eds would have been proud.
In order to help pay for the
increase in the IHT threshold
to 1m, the generous 45% tax
relief on pension contributions
for people earning more than
150,000 is being scrapped. Old
Mutual Wealth, quoted in The
Sunday Times, calculates that
someone earning 250,000
and contributing
40,000 a year to
his pension will
see the value
of the tax
relief slump
from 18,000
to just 4,500.
And that,
as they used to
say in American
movies, aint hay.
So, while a Tory
administration may
pose less of
a threat
to those

IFAmagazine.com

17/06/2015 17:42

INVESTORS
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CI063371 05/2015
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29/06/2015 16:47

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