For today s discerning financial and investment professional

Paraplanners Dont Leave Home Without One

What Low Yields
are Really Telling Us
Osbornes Tradable
Annuities

PARITY
LIKE ITS 1999
1 = $1 AGAIN?

MARCH 2015

Cover.indd 1

ISSUE 38

19/03/2015 14:35

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.
Nick Sudbury
known for his
columns in
many leading
financial
magazines.
Neil Martin
has been
covering
the global
financial
markets for
over 20 years.

Editorial advisory board:

Richard Butler, Michael Holder,
Ian McIver and Mark Pullinger

03/15

THE FRONTLINE:
What goes
around, comes
around. If you
wait long enough,
that is. So what
happens now?

Editor: Michael Wilson

editor@ifamagazine.com

Art Director: Tony Merlini

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

14

Parity and the Euro

Its been a long time for the undervalued
greenback, says Michael Wilson

19
UK Equity Income Funds
Nick Sudbury says the current popularity of
UK plc is entirely rational

25
Paraplanners
And why you need one. Sara Arthur, MD
at the Parahub, explains

29
Its All About the Timing
Pensions expert Steve Bee takes some lessons from
Tom and Jerry

33
Landscape Artist
Neil Martin talks to Mike Parsons, of JP Morgan
Asset Management, about the joys of the open road

36
Low Yields, Clear Hints
Theres a lot you can tell from the current state
of risk aversion, says M&Gs Caitlin Hughes

38
Indexing Error
Are you sure you know whats in that index
youre tracking, asks Brian Tora?

41

tony.merlini@thewowfactory.co.uk

Rethinking the Adviser Model

Publishing Director: Alex Sullivan

Neil Martin talks to John Spiers,

the head of crossover adviser EQ

alex.sullivan@ifamagazine.com

Cover.indd 2

19/03/2015 14:35

PART

CONTENTS

March 2015

44
Plain Talking
Defaqtos Gill Cardy is back!

46

Still the Big Country

Our panel of senior analysts tells us that America

is far from being structurally overvalued

55

Compliance Doctor
PS 15/4 is important but its been cobbled
together at high speed, says Lee Werrell

65
FCA Publications and IFA Calendar
In the news, in print and in court. Our monthly
listing of whats new in FCA-land

65
Thinkers: Thomas Malthus
The world is not enough, he said.
Was he right?

65
The Other Side
Lifes a gamble, says Richard Harvey.
But has the government rigged the odds?

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

Contents.indd 3

19/03/2015 14:21

L
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Ed's Welcome.indd 4

Job No: 49694-2

Publication: IFA Magazine

Size: 297x210

Ins Date: 01.03.15

Proof no: 1

Tel: 020 7291 4700

19/03/2015 14:23

WORDS OF WILSON

March 2015

Look on the
Bright Side
Its not every day that I
acknowledge a profound debt
of gratitude to the inimitable
Ken Fisher, the chief executive
of Fisher Investments, who writes
periodically in the Financial Times
about all things transatlantic

I suppose its probably the

sunny Fisher grin and the
annoyingly perma-bull
approach to life that
grates slightly on a poor
jealous Englishman stuck
in Wiltshire on a grey day
in March. But the other
weekend Mr Fisher came
up with something that
made me properly sit up
and take notice. In fact, Im
still trying to work out now
whether hes onto something
eternally profound, or just
a long run of historical
coincidences? You decide.
We are getting our
venerable English knickers in
a proper twist, Mr Fisher said
(I paraphrase him slightly),
about the dire financial
prospects that are likely to
arise from the forthcoming
election. It currently seems
next to impossible that any of
the major parties can hope to
form a government without
having to sacrifice its bold
autonomy to some sort of a
messy coalition that will stop it
from doing anything decisive.
Lessons from History
And that will be just terrible
for stocks. Wont it? Actually,

IFAmagazine.com

Ed's Welcome.indd 5

says Mr Fisher, no it wont. The

markets only thin that they
hate an indecisive government
with no scope for bold innovation.
In practice, they absolutely
love it. And history provides an
endless sequence of incredibly
profitable stock market runs
that have happened during
periods of political gridlock.
There was the infamous
Lib/Lab pact of 1977-79, which
saw a 60% resurgence in the
Footsie. There was the awful
second Clinton term in the
late 1990s, when a powerless
Democrat President presided
not just over a Republican
Congress, but also over one of
historys longest bull markets.
Theres Germanys toothless
grand coalition, which is
currently turning in a fantastic
Dax performance. There were
all those bickering, incompetent
European administrations
in the 1980s, all of which
managed to outperform the UK
even though we had Margaret
Thatcher running the show.

The point, says Fisher, is

precisely that a badly hamstrung
coalition cant do much damage
through being clumsy. It cant
pitch its economy headlong
into a bold new ideology. Id
personally add that it cant
get away with starving the
economy into recovery, as
George Osborne has tried to do.
nifie , cti e o ernments
re li elier to o thin s stoc s
h te, says Fisher.
ch s
ch n e ro ert ri hts, re r
re l tions n re istri te
reso rces n c it l...
h
rli ments
cre te inners n losers
lore, ri in le isl ti e ris
ersion n h rtin stoc s.
I wish Id said that,
Oscar. But is he right? Well
find out soon enough.
Mike Wilson, Editor

19/03/2015 14:23

NEWS

Pension Conversions:

The Knives
Are Out
We shouldnt have been surprised, or course.
With the general election barely six weeks
away, and with one of the tightest run-ins
for half a century on the cards, the fighting
was bound to get dirty sooner or later

On the one hand

was the UKIP
leader Nigel Farage,
offering to strike
up a support
arrangement for a
future Conservative
government - while
absolutely ruling
out a coalition with
the Tories because,
Mr Farage said,
most of the people
sitting around the
cabinet table are
ghastly. And all
that on condition
that David Cameron,
or preferably the
chief whip Michael
Gove, agreed to hold
a referendum on
Europe this year.
(Total nonsense
was Chancellor
George Osbornes
official line on a Tory
deal with UKIP.)

News.indd 6

On the other was

the fix that shadow
chancellor Ed alls
got himself into over a
collaboration approach
from the Scottish
Nationalists an
idea that his boss Ed
Miliband had already
rejected. ut if, as
he claimed, the S P
wants to break up the
nited Kingdom and
cannot stand up for
the whole of the K ,
how did he find himself
conceding to the
s
ndrew Marr that he
was not going to get
involved in speculation
about post-election
deals, because we are
fighting for a majority.
Desperate Times,
Desperate Measures
There were, then,
obvious signs of

desperation coming
from both camps. ut
what should we make
of the hancellors preudget statement on
15 March, to the
effect that pensioners
with existing annuity
contracts might
still be allowed to
participate in the April
pension freedoms,
despite having
signed on the line
for a lifetime income
rather than unlimited
capital freedoms
t certainly did
look like a late attempt
by the Tories to round
up the grey vote and
stop it running away to
K P. nd it seemed
a logical extension of
last ecembers other
panic measure, which
had allowed efined

From April 2016,

the government
will remove the
restrictions on
buying and
selling existing
annuities

Chancellor, George Osborne

IFAmagazine.com

19/03/2015 14:30

NEWS IN BRIEF

UKIP Leder, Nigel Farage

enefit pension holders

the prospect of cashing
in their benefits for
-style lump sums.
ut how might the new
idea work in practice
The governments
statement was
confident enough
The hancellor has
announced that the
government will
extend its pension
freedoms to around
5 million people who
have already bought
an annuity, it began.
From pril 2016,
the government will
remove the restrictions
on buying and selling
existing annuities to
allow pensioners to
sell the income they
receive from their
annuity without
unwinding the original
annuity contract ..
Pensioners will then
have the freedom to
use that capital as they
want just as those

to use the proceeds

more gradually .
Industry Reactions
Tish and pshaah, the
industrys response
seemed to say. To sell
an existing annuities
contract for cash,
youre going to have
to find a buyer for
it. Which wont be
easy, given that its
financial outcome, and

Its clear to
see how this
fits with this
Governments
agenda for
pensions, but
what is less
clear is how
savers will be
protected

Joanne Segars, CEO National Association of Pension Funds

who reach retirement

with a pension pot can
do under the pension
freedoms announced
in udget 2014. They
can either take it as
a lump sum, or place
it into drawdown

IFAmagazine.com

News.indd 7

therefore its value,

depends entirely on
how long youre likely
to live. re annuity
holders looking for a
conversion really going
to have to bare every
detail of their health

to the prospective
buyers, like slaves
in a marketplace
oanne Segars, the
hief Executive of the
National Association of
Pension Funds, put it a
little more subtly. ts
clear to see how this fits
with this Governments
agenda for pensions,
she said, but what is
less clear is how savers
will be protected.
full consultation will
be essential . which
would need to look at
how the buy-back price
of an annuity would
be calculated so people
selling their annuity
could be assured of good
value and also consider
a prescribed process for
introducing buyers and
sellers to avoid excess
costs, which would
inevitably be carried
by the consumer.
ot a good start,
coming from the
countrys biggest
federation with over
1,300 pension schemes
covering some 17
million people. ut
ndrew Tully, pensions
technical director at
MGM dvantage,
rammed home the
point rather more
forcibly. t was, he
seemed to be saying,
nothing less than
robbing people twice
instead of only once

QE Gets Under Way

Quantitative easing in the euro
zone got under way, as the
European Central Bank started
buying in Eurozone government
bonds, often at low or even
negative yields. Greek bonds
are not eligible for support
within the current scheme.

Falling Down
UK construction output fell by
2.6% in January, sharply below
economists expectations
of a 1.2% rise. It was the
biggest fall since November
2013, and contrasted with a
0.6% increase in December.
Housebuilding activity fell by 5%
over the month, commercial
building by 6.6% and new
infrastructure work by 2.7%.

There are
significant risks, he
said, and two wrongs
wont make a right.
eing sold a poor value
annuity and then
being offered a poor
value cash lump sum,
which is taxable, will
not address the issue
of an inappropriate
original sale.
uite so. This
ones going to take a
bit of sorting out.

19/03/2015 14:30

NEWS
NEWS IN BRIEF

Fools Gold
The FTSE-100 finally beat
its end-1999 record in late
February in nominal terms,
at least, In real inflationadjusted terms it would have
needed to be 53% higher.

16 Million
Orphans?

Yakkety Yak

As if the response to the pension freedoms wasnt enough,

More than a billion smart phones

were sold worldwide in 2014,
according to Gartner research.
Global champion Samsung
faced tightening competition
from Apple after the iPhone 6
was launched.

there was more bad news for the Chancellor, and for the
FCA, from Garry Heath, a former Director General of The IFA
Association and the eponymous founder of the Heath Report.
And half a cheer for the sceptics who had always lamented
the loss of the old commission model.
The true scale of the
RDR disaster was
only now becoming
evident, it seemed.
23 million UK
Citizens used to
be able to access
advice through

banks or the IFA

sector, it thundered.
But, thanks to the
regulators obsession
with creating a
commission free
market 16 million no
longer have access,

and if they persist

with removing Trail
Commission the
7 million consumers
still advised will
at best drop to 5.5
million, and at
worst 4 million.

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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,
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News.indd 8

IFAmagazine.com

19/03/2015 14:30

NEWS IN BRIEF

Never a man to
mince his words, Mr
Heath affirmed that
13,500 advisers have left
the industry since the
announcement of
and that nowadays the
only consumers likely
to receive advice are the
seriously wealthy. Which
made it a mystery how
this could be seen as
consumer protection
Institutional Evasion
We have a regulator
who derives its power
from a statute passed
by Parliament but
is not responsible to
anyone particularly
the Parliament that
created it, he declared.
This allows the F
to embark on this act
of vandalism in the
sure fire knowledge
that no one can stop it.
t is an abuse of power
- pure and simple .

The separate
disclosure of the
advisers compliance
and compensation
costs so that
consumers can see
the costs they are
paying for - over
which the adviser
has no control.

The creation of a
oyal ommission to
define what citi ens
can reasonably
expect from the
state and what they
should provide for
themselves.

Garry Heath

The annual cost of

is 340 million,
Heath insists - and
rising. nd the failure
of the regulator to define
Simplified dvice, as it
promised the Treasury
Select ommittee 4 years
ago, means that there
is no sign of alternative
distributions big enough
to take up the 16 million
abandoned consumers.
The Heath Report
therefore proposes
n

New legislation
to restore proper
Parliamentary
accountability in
Financial Services
egulation.

The suspension of
the F s plans
to remove Trail
commission in 2016.

My Old China
China announced plans to
raise the retirement age for
both men and women, with
effect from 2017. The over60s are expected to grow
from 15% of the population
today to 40% by 2050.

theheathreport.com

Yee Haw

Wise words or
in ammatory
rhetoric? Let us
have your thoughts
please. Email editor@
ifamagazine.com

The Nasdaq, a bellwether

for confidence in US tech
stocks, closed above 5,000
for the first time since March
2000. The S&P 500 had long
been in record territory.

Lord Green

Yield

4.03%
as at 31.12.14

web: fidelity.co.uk/mai
call: 0800 368 1732

IFAmagazine.com

News.indd 9

19/03/2015 14:30

NEWS
NEWS IN BRIEF

Stamp of Success
Stamp duty revenues on UK
residential house sales grew
by 24% in 2014-2015 to a
record high of 8bn, according
to figures from the Halifax
building society. But revenues
have fallen since the changes
contained in the December
autumn budget statement.

Grexident
Apologies to readers of a more
sensitive disposition for what
surely must rank as one of
the most teeth-grinding puns
of the last twelve months

Gone Fishing
Russia cut its interest rates
to 14%, the second drop
in two months, as concerns
grew about the viability of
economic growth in view of
its heavy dependence on
depressed oil and gas prices.

The central bank has

estimated that GDP will
fall by as much as 4% this
year. Meanwhile, President
Putins apparent absence
from the public sphere set
tongues wagging both at
home and abroad.

10

News.indd 10

But Grexident
was the word
of the moment
in mid-March,
after Germanys
finance minister,
Wolfgang Schuble,
told an Austrian
broadcaster on
Thursday night
that the lack of
progress over
Greek austerity
was increasing
the chances of an
accidental Greek
exit from the euro.
ccidental ets
put it like this. The
Greek authorities
have been up to their
armpits in difficult
negotiations with
russels and the
troika the European
ommission, the
European entral
ank and the
International
Monetary Fund),
over the levels of
austerity that will be
required to maintain
Greeces 2011 bailout.
Or, for that matter,

to negotiate a third
round of finance when
the existing package
expires in une 2015.
The problem being
mainly that Greeces
new premier, lexis
Tsipras, signed up in
February to a package
of measures that
will get him lynched
in his own streets if
his finance minister
anis aroufakis goes
back to Athens with
very much less than
a total climbdown
from russels.
Something which
hes most unlikely
to get. To quote
aroufakis We will
succeed in living up
to the expectations of
the Greek society, the
popular mandate and
our oath to honour
these fights and give
popular sovereignty,
independence and
prosperity back to
our country.
Even European
president eanlaude unckers

appeals for northern

European i.e. German)
solidarity with the
errant southern
ank of the euro one
seemed to be falling
on deaf ears unless
you count a grudging
nod from Germanys
hancellor ngela
Merkel. We have, then,
an irresistible force
meeting an immovable
object, which of course
is how you generate
an explosion.
So what did
Sch uble say to upset
thens asically, this
s the responsibility,
the possibility to
decide what happens
only lies with Greece,
and because we dont
exactly know what
those in charge in
Greece are doing,
we cant rule out an
accidental departure
Truthfully, of
course, it would take
a deliberate act of disunion from the E
in
Frankfurt to activate
any such an ejector

IFAmagazine.com

19/03/2015 14:30

NEWS IN BRIEF

Wolfgang Schuble

seat, and theres surely

no reason to suppose
that the explosive
charges in the release
mechanism havent
been deactivated long
ago. ut if youre
looking for the reasons

Germanys
finance
minister,
Wolfgang
Schuble,
has hinted
that the
lack of
progress over
Greek austerity
was increasing
the chances of
an accidental
Greek exit from
the euro

why the euro has

slumped close to dollar
parity during the last
month, the Grexident
factor wouldnt be a
bad place to start.
Taxing the Patience
Meanwhile, a little
counter-intuitively,
the first signs of a
turnaround in the
Greek economy seem to
have been tentatively
happening. Greeces
statistics service
E ST T published
an initial estimate for
G P growth during
2014 last year which
it reckons improved
by 0.8 , rather better
than the 0.6 that
its own forecasters
had been predicting.
ut dont hang
out the bunting yet.
Preliminary estimates
showed that the thens
government missed its
1.4bn budget surplus
target during the first
two months, managing
only 1.2 bn because

of a painful shortfall
in tax revenues.
Tax revenues, the
finance ministry
said, totalled 7.3bn
around 14 below
the targeted 8.5bn.
Undercover Mission?
nd that was what
prompted aroufakiss
pretty extraordinary
plans for a new
network of governmentsponsored amateur
tax snoopers, each of
them wired for sound
and video, to seek out
Greeces many millions
of serial tax evaders.

Alexis Tsipras

aroufakis
confessed, in a leaked
memo, that the backlog
of tax arrears currently
stood at 76bn 55bn)
about 5,000 for
everyone in the country
- but that only 8bn of
this was ever likely to
be recoverable. Given,
he said, that the states
tax inspection service
was demoralised
and understaffed, it
might be an option
to recruit large
numbers of hourlypaid non-professional
inspectors , including
tourists, to check up
on his countrymen.
Tourists es
indeed, and many
of them German,
apparently. erlin has
already offered to send
500 tax inspectors to
thens if need be but
the massed hordes
of German tourists
who head south every
summer would also
provide excellent cover
for the investigators.
las, as long
as ritains climate
remains coldly
northern, alas, George
Osborne can only dream
of doing the same.

IFAmagazine.com

News.indd 11

We Interrupt this
Service
Bitcoin values sulked
around the $285 mark in
mid-March a significant
improvement on the $175
level of mid-January but still
35% down on the values
of last November. Bitcoin
miners had been hit by a
wave of denial of service
attacks during early March.

Real Pain
The Brazilian real continued
its worsening slide against
foreign currencies, having now
lost more than 40% against
last summers dollar rates.
There were riots in many
cities against perceived
corruption and political
incompetence in the
government, which only
began its new term in January.
Meanwhile, the central banks
forecasts of a 0.66% economic
shrinkage in 2015 are looking
too rosy for comfort.

11

19/03/2015 14:30

NEWS
NEWS IN BRIEF

Looking Good
Strong US growth was also hinted
at by encouraging employment
statistics. Meanwhile the
Federal Reserve was thought
to have advanced its plans
for a raising of US interest
rates, probably by mid-year.

ETF Assets head

for $3 Trillion
Clear evidence

Fuhrs ETFGI

toward passive

consultancy,

moving faster

The spring budget, announced

on 18 March, included a new ISA
for first time house buyers which
would attract 50 of government
cash to match every 200 they
saved toward their deposits. It
was expected to be popular.
The government also relaxed the
intra-year withdrawal rules for ISA
accounts, allowing investors to
draw down cash without losing
part of their annual entitlement.

Sweet Harmony
The Chancellor also announced
various changes to EIS, VCT
and SEIS arrangements, which
basically harmonised the
eligibility rules with the European
rules on state assistance. He
also abolished the rule requiring
SEIS funds to spend 70% of their
start-up cash before they were
eligible to graduate to EIS status.

12

News.indd 12

to Debbie

that the trend

products is

Free Money

According

than expected

were looking to
break through
the $3 trillion
milestone for
ETFs and ETPs

Only this January,

PwC issued a report
projecting that
global ETF assets
under management
would double to $5
trillion by 2020. And
already, according
to Debbie Fuhrs
ETFGI consultancy,
were looking to
break through the
$3 trillion milestone
for ETFs and ETPs in
the first half of
.
All of which was
rather timely, given
that March marked
the 25th anniversary
of the very first ETF
listing, in anada.
Pass the birthday cake
and the champagne
Total global AUM
at the end of February,
Ms Fuhr said, came to a
colossal 2. 1 trillion
some $110 bn more than
in ecember 2014. The
global ETF ETP industry
had 5,632 ETFs ETPs,
with 10, 02 listings,
from 245 providers
listed on 63 exchanges
in 51 countries.

in the first half

of 2015

Debbie Fuhr

ut traffic was also

phenomenal.There were
50.7 billion in net new
asset
) in ows
during February alone,
she said the second
largest NNA month
on record, after the
61.5 billion recorded
in ecember 2014.
Equity Trackers in Favour
Where was the money
invested Equity ETFs
ETPs accounted for
the largest net in ows

30.4 bn, or 60 ),
followed by fixed
income ETFs ETPs
with 15.6 bn 30.7 )
and commodity ETFs
ETPs with 2. bn in
net in ows 5.7 ). On
a year to date basis the
net new asset ows into
all sectors are at record
levels - 28.8 bn into
fixed income, 8.0 bn
into commodities, 2.7
bn into active ETFs
and 62.0 bn globally.
iShares gathered
the largest net ETF/
ETP in ows in
February with 1 . bn,
followed by anguard
with 5. bn and SP
ETFs with 4.3 bn
net in ows. On a T
basis, iShares gathered
the largest net ETF/
ETP in ows with
26. bn, followed by
anguard with 15.7 bn
and WisdomTree with
6.8 bn net in ows.
nvestors allocated
the majority of net new
assets to equities,
said Ms Fuhr, as the
S market rebounded
from a difficult anuary
to end February with
both the S P 500 and
the ow up 6 for
the month. olatility
declined during the
month. eveloped
markets were up
6 for the month,
while emerging and
frontier markets
were up 3 .

IFAmagazine.com

19/03/2015 14:30

News.indd 13

19/03/2015 14:30

March 2015

SOAPBOX

First Among Equals?

Its been a long time coming, says
Michael Wilson, but the dollar
is finally reasserting itself
over the upstart euro

We were just getting the

March issue of IFA Magazine
together when the dread
news came over on the
radio. For the eleventh day
in succession, the euro/
dollar exchange rate had slid
back (or soared, depending
on your viewpoint), and
one dollar would now cost
you a whole 93 euro cents,
compared with 89 euro

14

Ed's Soapbox.indd 14

cents on 3 March. Yes, in

the space of seven days the
currency had lost 6% of its
value. nd, for the first time
since 2003, one American
dollar was starting to look
like it would buy you a euro.
Five days later, as we got
to the finalisation phase for
IFA Magazine, the situation
had attened out a little but
it had in no way improved.

nd you could
almost hear the
satisfaction coming
in across the airwaves from
Washington and ew ork.
ts been a long time coming,
Europe, the voices said, but
we got there eventually. So
you really thought your puny
little lashed-together raft could
outperform the mighty S
battleship in the long term

IFAmagazine.com

19/03/2015 14:30

March 2015

Even though your crew members

have been threatening to push
each other overboard for the
last five years, and the only one
with the keys to the engine,
Germany, had been refusing to
keep those Greeks on the team
if they accepted half rations
and paddled twice as hard
ou couldnt make it up, pal.
ritons are also celebrating.
ast summer the pound was
trading at 1.20, meaning that
holidaymakers were paying 83
pence for every euro coin in
mid-March, however, the
rate had soared to 1.40
for the first time
since ecember
2007, meaning
in effect
that

IFAmagazine.com

Ed's Soapbox.indd 15

their holiday spending power

in the euro one had improved
by 15 in nine months. nd
what was more, this was
happening against a generally
negative in ation rate, which
meant that their bonan a was
even bigger in real terms.
Whats causing this collapse
in the euros value oud have
to have been living in a cave
to have missed it. On the one
hand, city analysts
are saying that
continued
fears over
a Greek
exit

Grexit ) from the Euro one

has put the skids under the
common currency. nd on
the other, this months 60bn
commencement of the scheduled
1.1 trillion quantitative easing
has opened up the very real
likelihood that in ation will
pick up, and that the sheer mass
of new money being printed
will devalue whats left. The
forward currency markets will
have got their calculators round
this likelihood some time ago.
E Pluribus Unum
The cynics in Washington do
have some pretty good reasons
to be feeling smug about all this.
The euro and the dollar are both
federal currencies which are
shared by large-ish groups of
states 1 in Europe, 50 in
merica), but thats where
the similarities end. We
could no more think
about ew Mexico
being forced out
of the union,
or alifornia
demanding
a better

15

19/03/2015 14:30

SOAPBOX

March 2015

exchange
rate, than
we could
imagine
Russia
joining.
ecause
the political
ties holding
the 50 states
together at
every level are
too powerful.
The euro
one, on the
other hand, does
not have a fully
political union of its
own yet) and nor
does it have the sense
of shared cultural values
that the nited States can
call its own. More than 20
official languages, 1 central
banks plus a central entral
ank, of course), and perhaps
most importantly 1 separate
national finance ministries
with 1 sets of bond markets.
Thats not the kind of mess
that Washington would ever be
prepared to tolerate. s it, now
t a time when policy
differences between Europe
and the nited States are
sharpening, and when mericas
perception of its ties to Europe
is under strain particularly from
the epublican direction, the
troubles in Europe are being

taken as
a welcome
boost to stock
market confidence.
Who cares if the cyclically
adjusted p e on the S P 500
is in record territory around
28), and if corporate profits
are set to shrink snt this
simply a confirmation that
Washingtons unified approach
at every level has once again
proved itself to be a better way
to go than all that squabbling
over there in Europe

EUR per 1 USD

13 Mar 2005 00:00 UTC - 10 Mar 2015 15:34 UTC
USD/EUR close: 0.93189 low: 0.62597 high: 0.93223

What
Can Negative
Bond Yields Mean?
One of the weirdest
illustrations of the very
special situation in Europe this
year has been the emergence of
negative nominal bond yields
among certain European lenders,
notably Germany, ustria, and
euro non-members enmark
and Swit erland. The situation
was laid horribly bare in midMarch, when the European
entral ank began its first
60 bn round of bond buybacks
and ended up having to pay
prices that represented yields
of below ero percent. Ouch.
es, weve got the very
real scenario of even very large
lenders paying the borrowers
simply for the privilege of being
able to park their cash in the
borrowers bank vaults. nd
in the E s case, its a pretty
impressive indicator of just
how awkward its rescue for
southern Europe is going to be.

(Source: XE)

16

Ed's Soapbox.indd 16

Try looking at it this way. f

youd had your money in a Greek

IFAmagazine.com

19/03/2015 14:30

March 2015

people must be feeling. lready,

commentators are wondering
just how much of the 1.1
trillion E programme can be
achieved if prices are this high.
Thats something thats been
happening not just to the rocksolid Euro one countries, of
course, but also to ritain,
where the competitive
overseas pressure for
gilt ownership has
kept ritish yields
so pathetically
low over the
last few
years
much
to the
chagrin
of pension
annuity
buyers, whose
contracts are based
on the prevailing
gilt rates at the time
they buy their annuities.

banks vault
for the last
six years, the fact
that it was in euros
wouldnt amount to very
much consolation if you thought
there was even a chance of a
default by the Greek Treasury,
or even just a delay in getting
your money back. Which is also
considered a default.) nder
these circumstances you might
very well be willing to accept a
ero return, or even to pay a safe
keeping fee to the undesbank
for the privilege of knowing
that you could get at your cash
whenever you needed it.
Thats understandable
enough for the Greeks, of course,
but this time its the E
itself
thats the lender. y the way,
Greek bonds dont qualify for
the E bond-buying programme
because the necessary safeguards
arent in place.) f even the
boys in Frankfurt cant do a
bond buy-back at reasonable
rates, thats a pretty scary
measure of how panicky other

IFAmagazine.com

Ed's Soapbox.indd 17

nfortunately its also been

happening in merica, where
the ight to quality has been
driving down Treasury bond
yields at just the time when Fed
hairman anet ellen had been
talking about raising mid-year
interest rates. That puts her in a
tricky position should she hold
off with the increases to prevent
further dollar appreciation, or
would she be better advised to
restrain further growth ever so
gently nd what will happen
if S yields then suddenly
rebound - because, for instance,
the European entral ank
suddenly starts to look like its got
its act together so that demand
for S bonds suddenly abates
Thats not such a fanciful
scenario as it looks. For the last
few weeks, S bond yields have
been swooping and switchbacking
in a very unsettling manner, as
the relative merits of European
and merican bond markets
have been tested by an endless
succession of twitch-making
news. s recently as February,
10 year yields were ranging
between 1.65 to 2.05 in the
space of a day. nd in case you
need reminding, that apparently

small uctuation in yield equates

to a 24
uctuation in the
value of the bonds themselves.
There are other reasons to
worry about the sudden strength
of the dollar. tll be great for
S tourists in Paris, but bad
for anyone hoping to sell cars
or computers or Smart watches
in Europe. tll make this the
perfect year to buy a Porsche,
if youre merican, that is, and
maybe the iper can wait till
next year. tll severely damage
the merican tourism trade.
The Size of the Slide
ut we digress. ast month,
IFA Magazine asked our
urning ssues panel for their
views on where the Euro one
economy was headed, and the
overwhelming sentiment was
that most of the bad news was
already priced in, and that
this might just be an ideal
time to make an entrance.
Five weeks on, some of the
panels confidence has been
rewarded. ut only if you happen
to be denominated in euros.
On the plus side, the FTSE
Eurofirst 300 had gained 5
during the month to mid-March,
but the sterling euro exchange
rate had nearly taken the gloss
off the gains for a sterling
investor - and much more for
a S investor, whod seen the
equivalent of 8 knocked off
the dollar value of his Euro one
holdings during the month.
Going Forward?
That, of course, is an overly
simplistic view of the situation.
n time, the enhanced currency
competitiveness of Euro one
manufacturers ought to bring
them significant benefits in
the export markets, notably
to the nited States itself.
nd those benefits wont
be in the figures yet.
s long as a Grexident
doesnt take Greece out of the
euro and it would take a
mighty act of perverseness from
Germany to give it a helping
shove there is every possibility
that Europe may once again
outperform. ut the risks are
not to be underestimated.

17

19/03/2015 14:30

Products - UK Equity Income.indd 18

19/03/2015 14:41

PRODUCTS

March 2015

UK Equity Income
The Best of All Worlds?
Dividend yields in the UK Equity sector can exceed 3.5% per annum, but there
is further upside for investors who can accept more risk. Nick Sudbury reports

UK Equity Income funds

have been the best-selling
sector of the market for a
staggering eight months in
a row. The Woodford effect
has undoubtedly had a
lot to do with it, although
the strong demand also
re ects the increasingly
desperate search for yield.
In spite of its enduring
popularity, a number of
high profile constituents
have recently moved out of
the sector including funds

IFAmagazine.com

Products - UK Equity Income.indd 19

run by nvesco Perpetual,

Hendersons and St Jamess
Place. The reason for this
unusual move was the
unwillingness to comply with
the high income requirement
at the cost of compromising
on the capital growth.
ll the funds in the sector
are required to invest at least
80 in K equities and to
achieve an historic yield on
the distributable income in
excess of 110 of the FTSE
All-Share yield at the funds

year end. The test is applied

over rolling 3-year periods
with the current income
benchmark being around 3.6 .
There are about 60 funds in
the sector that are paying out at
least this amount, but the risk
is that they are effectively being
forced to invest in high yielding
blue chips that have been bid
up in value. This makes it
more important than ever to
assess the investment process
and to satisfy yourself that
the manager is up to the job

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19/03/2015 14:41

PRODUCTS

March 2015

The Midas touch

n its first months eil
Woodfords new UK Equity
Income fund has attracted
a staggering 4.7bn in
AUM. This remarkable
achievement is a testament
to his success running
a similar mandate at
Invesco Perpetual and
also re ects one of the
highest profile marketing
campaigns the investment
world has ever seen.

33 allocation comprising
holdings such as stra eneca,
GlaxoSmithKline and oche.
Its other main overweight
position is in Industrials, where
companies such as apita and
E Systems make up a 17
exposure, which is well in excess
of the 10 representation in
the benchmark. The main
underweights are Oil &
Gas, Financials, onsumer
Services and asic Materials.

Woodfords nvesco
Perpetual ncome fund
generated an annualised
cumulative return of 14.3 over
his 23-year tenure, which was a
full 500 basis points more than
the sector average. t will not
be easy to replicate this sort
of outstanding performance,
but he has started well, with
his new venture up more than
15 since launch compared to
the 2 increase in its FTSE
ll-share benchmark.

Its an interesting portfolio,

because although the top 10
blue chips make up almost 50
of the fund there are plenty
of smaller holdings to provide
long-term capital growth. These
include several biotech firms,
the peer-to-peer investment
trust, P2P Global nvestments,
and the active investment
fund Crystal Amber. Other

The portfolio is massively

tilted in favour of the
Healthcare sector, with a

CF Woodford
Equity Income
Type:

UCITS (UK)

Sector:

UK Equity
Income

holdings such as Game igital

and rax have struggled, but
have been retained because the
business case remains intact.
Woodford is very much
his own man and not afraid
to be different - which should
ensure that the fund is
relatively uncorrelated with
the rest of the sector. s with
his previous mandates, there
is a big emphasis on capital
preservation, and clients will
also appreciate the fact that
the new fund is targeting a
competitive starting yield of 4
with quarterly distributions.
The F Woodford Equity
ncome fund has attracted a
massive amount of capital in a
very short space of time, but it
is up and running in impressive
fashion. Woodford has shown
himself to have a safe pair of
hands and there is no reason to
doubt that he will continue to
deliver. t is difficult to see what
could go wrong unless something
was to seriously undermine
the global healthcare sector.

Fund Size: 4.7bn

Launch:

June 2014

Yield:

4%

Ongoing
Charges: 1%
Manager: Woodford
Investment
Management

woodfordfunds.com

20

Products - UK Equity Income.indd 20

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19/03/2015 14:41

March 2015

Hidden Gem
One of the best performing
funds in the sector is the
little known Evenlode
Income, which is up 95%
in the last 5 years. It is run
by ise nvestment, a firm
based in rural Oxfordshire,
and has just 252m in AUM.
Since it was launched in
October 2009 the fund has
achieved an annualised
return of 13.8%, a full 500
basis points ahead of its
FTSE All-Share benchmark.
Hugh Yarrow, the lead
manager, who looks remarkably
like Hugh Grant, looks for
good quality companies that
are asset-light. He aims to
identify businesses with
high returns on capital and
strong free cash- ow that
can generate sustainable real
dividend growth. The portfolio
bears very little resemblance
to the index with holdings
retained for the long-term.
At the end of January
there were just 31 positions,
with the top 10 accounting

for 52.1 of the fund. These

included the likes of nilever,
GlaxoSmithKline, iageo, Sage
Group and stra eneca. The
largest sector allocation was the
34.6 weighting in onsumer
Goods, followed by 15.7 in
Healthcare and 10.
in Media
stocks. lmost three-quarters
of the money is invested in blue
chips, with the balance in midtier companies, although for
most of the period since launch
there has been a significant
small cap exposure that started
off around the 50 mark.

Evenlode Income
Type:

OEIC

Sector:

UK Equity
Income

Fund Size: 252m

Launch:

October 2009

Yield:

3.58%

Ongoing
Charges: 0.99%

arrow is conscious of the

fact that the higher valuations
mean that future returns are
likely to be lower than in the
recent past. He believes that
revenue growth is harder to
come by, and that this makes
it more difficult for companies
to grow their dividends.
That is why he looks for
businesses with sustainable
free cash ow, as these have a
safety buffer to protect them
against a slowdown in the
economy or any company or
industry specific setback.
The fund offers a decent
3.58 yield with quarterly
distributions, and despite
its relatively small size it
has a competitive ongoing
charges figure of 0.
for
the clean share class. t is
an interesting offering and
Yarrows willingness to move
between large caps and small
caps differentiates it from
many of its peers. Would make
a decent diversifier to one of
the larger funds in the sector.

Manager: Wise
Investments

evenlodeinvestment.com

IFAmagazine.com

Products - UK Equity Income.indd 21

21

19/03/2015 14:41

PRODUCTS

March 2015

Ticks All the Right Boxes

Most of those investing in
the sector typically want to
be able to rely on a steadily
increasing income stream
with long-term capital
growth and as little volatility
as possible. Clients that fit
into this profile are likely to
find that Tro an ncome from
Troy Asset Management
ticks all the right boxes.
The 2.15bn Trojan ncome
fund was launched in September
2004 and by the end of anuary
had achieved a cumulative
return of 164.6 , which was
comfortably ahead of both the
sector average and the FTSE
ll-Share at 117.
and 127.3
respectively. ts annualised
volatility of .4 was well below
the 13 plus recorded by both
benchmarks, and the maximum
drawdown a full 20 less.
alculations by FE nalytics
suggest that it has one of the
best risk-adjusted performance
records in the sector.
Trojan ncome has
successfully raised its dividend

every year since it was launched

with the annual payments going
from just over 4 pence per share
in 2005 to around 6.5 pence
in 2014. This represents an
average annual increase of 5.1 ,
which is particularly impressive
given that it straddles the period
encompassing the 2008 0
financial crisis. The fund now
has an attractive net yield of
3. , although the distributions
are only made twice a year
rather than quarterly like
some of its peer group.
Francis rooke, the
manager, invests in solid
businesses with good cash ow

Trojan Income
Type:

UCITS

Sector:

UK Equity
Income

Fund Size: 2.15bn

Launch:

September 2004

Yield:

3.9%

and sustainable yields. This

is a fairly diversified portfolio
with 42 holdings, and with the
largest, nilever, only making
up 4.1 . The rest of the top 10
include the likes of mperial
Tobacco, GlaxoSmithKline,
P and HS , and together
they represent just under
a third of the fund.
ts largest sector allocation
is the 22 exposure to
Financials, followed by 21
in onsumer Goods, and
14 in tilities. There is
also a
holding in cash.
This solid, no nonsense
approach, has generated
consistent, market beating
returns, at a much lower level of
volatility than the benchmark.
The last 12 months were
particularly good, with the
14 gain elevating it into third
place in the sector, but it will
not always top the table like
this. The fund would make an
ideal core portfolio holding for
income seeking clients with a
reasonable level of risk aversion.

Ongoing
Charges: 1.02%
Manager: Troy Asset
Management

taml.co.uk

22

Products - UK Equity Income.indd 22

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March 2015

Keeping Up Appearances
Clients who are willing to
give up some capital growth
in return for additional yield
may be interested in an
innovative product like the
Schroder Income Maximiser
fund. This consists of two
elements. There is a valuebased UK equity portfolio
that provides a yield of
3.5% with the potential for
long-term capital growth
and an option overlay
strategy to take the yield up
to the target level of 7%.
The fund was launched
in ovember 2005 and has
attracted a creditable 1.2bn
in
M. Over the intervening
years the accumulation units
are up around 100 , which is
well in excess of the FTSE llShare, but the income units are
broadly unchanged. These have
paid out the target yield of 7
each year with the dividends
distributed on a quarterly basis.
Thomas See, the
manager, has put together
a predominantly large cap

portfolio of 46 holdings of
which the 10 most significant
make up 45.6 of the fund.
These include companies such
as GlaxoSmithKline, Friends
ife, odafone and P. The
key sector exposures are 2 .8
Financials, 20
onsumer
Services and 17.4 Healthcare.
n order to increase the yield
he is allowed to sell short dated
call options in the underlying
securities. This covered call
strategy generates upfront
premiums from the sale of the
options, but limits the potential
capital gains. He can also sell
out-of-the-money put options

Schroder Income
Maximiser
Type:

Unit Trust

Sector:

UK Equity
Income

Fund Size: 1.2bn

Launch:

November 2005

Yield:

6.98%

on securities or indices not held

by the fund, which is another
way of boosting the income.
It is interesting to note that
although the way derivatives
are used should reduce the risk,
the fund has in fact recorded an
annualised volatility of 10.5 ,
which is slightly above the
sector average. ess surprising
is the higher than usual ongoing
charges of 1.66 . This is most
likely because of the extra cost of
buying and selling the options.
The manager invests in
robust businesses with the
prospect of sustainable dividend
growth. His aim is to sell just
enough capital growth across
the portfolio to meet the high
income requirement, while still
benefitting from the first part
of any share price appreciation.
t is a tough balancing act,
but income investors should
be pretty pleased with the
performance to date as it is hard
to think of any other sustainable
way of earning a 7 yield.

Ongoing
Charges: 1.66%
Manager: Schroder Unit
Trusts Limited

schroders.com

IFAmagazine.com

Products - UK Equity Income.indd 23

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Products - UK Equity Income.indd 24

19/03/2015 14:41

G U E S T F E AT U R E

March 2015

Paraplanners

Can you afford not to have one, asks Sara Arthur, MD at the Parahub?
We have all been there: those
days when the mountain of
paperwork never goes down,
and you are sat tackling
your administration in
frustration, bemoaning the
workload before you. Or
perhaps you have a queue
of leads, which you need to
follow up, but you are too
busy writing reports to do so.

IFAmagazine.com

Guest Feature - Parahub.indd 25

What is your role? What

part of your job do you love
the most? For the majority
of advisors, this will be
sitting in front of a client and
aiding them in securing their
future, not sitting in front of
a computer screen writing
letters, and chasing providers
for information. Would you
like the time to focus more on

building client relationships

and gaining new business?
The Right Skills in the Right Places
Step forward, the Paraplanner.
The very name means that
these people are there to
come alongside you and
share the burden. The role
of a Paraplanner has arisen
because advisers saw the need

25

19/03/2015 14:43

March 2015

to delegate important parts

of their workload in order to
maximise profit making ability
and make the best use of their
resources. A Paraplanner can
use their analytical strengths
and abilities to write clear,
compliant, documents which
back up the strategies you have
constructed with your clients.
The time they spend writing
reports is ultimately time you
can spend in front of clients.
Think of using a Paraplanner as
a business strategy tool: making
your processes more streamlined
and efficient and making
that return work for you.
For small F firms,
this can be a life-saver. One
man band F firms can find
it hard to take the strain of
servicing clients, attracting new
business and dealing with the
administration that the process
entails. There are a finite
amount of hours in a day, after
all! So, where do you start?

G U E S T F E AT U R E

train and nurture staff in the

ways of financial planning but
also save expense by spotting
errors. Having a chain of
responsibility to reduce risks
can only be a positive step.
The Outsourcing Alternative

Help yourself
maximise time
for profit. Sit in
front of a client,
and leave the
paraplanning to
the people who
do it best.

How To Use a Paraplanner?

There are a great many ways
to use paraplanning services,
depending on the size of your
firm and your requirements.
In-house paraplanning is a great
way of building a relationship
with a Paraplanner, and crafting
a strong team with the option
of the Paraplanner being the
point of contact in-house. This
lubricates the process and frees
up your time from dealing with
clients day-to-day contact.

Paraplanner, I was always the

secondary point of contact for
clients. If ever clients couldnt
get hold of the financial planner,
they would contact me. It was
reassuring for clients to know
there was someone else who
knew their circumstances
and was there to help.

Paraplanning is an
integral part of our process,
says Mark Jeffs, a Financial
Planner from Citimark. Its
a benchmark of our company
ethos, and the Paraplanners
are more than qualified to deal
with any queries that come their
way from clients When I was a

Dan Atkinson, senior

Paraplanner at EQ Investors
and IFP Paraplanner of the
ear, adds The reason we find
Paraplanners so useful at EQ
is objectivity around advice,
and the ability to spot new
business opportunities. Its a
virtuous circle, where we can

26

Guest Feature - Parahub.indd 26

Outsourcing paraplanning is
an alternative that may suit
smaller firms who arent ready
for the commitment of a full
time member of staff, or the
expense. Outsourcing is a major
factor in the paraplanning
industry, and a bevy of very
talented paraplanning firms
have sprung up to take the
burden off your shoulders.
Where do you look for them?
The ParaHub is a network
of Paraplanners and financial
administrators that serves as a
basis for facilitating networking,
educational resources and job
prospects. You can advertise
for a Paraplanner in the place
where they congregate, bridging
the gap between Advisers
and the people they need.
Whichever way you
look at it, maximising your
resources has the potential for
exponential success. Be kind
to yourself and make your life
easier; paraplanning is the way
forward. Having been elected
on the Government steering
group for the Paraplanner
Apprentice scheme, I can see
that the role is growing more
defined and being honed into
a destination in its own right.
Taking on an apprentice
Paraplanner may be a more cost
effective way forward, being
helped by government grants
of 10,000 per Paraplanner.
Help yourself maximise time
for profit. Sit in front of a client,
and leave the paraplanning to
the people who do it best.

IFAmagazine.com

19/03/2015 14:43

Invest in energy companies through an EIS.

Another bright idea from Octopus.
At Octopus were a big admirer of bright ideas. Thats why we love the Enterprise Investment Scheme (EIS), a
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Important Information
For professional advisers only and not to be relied upon by retail clients. This financial promotion has been issued by Octopus Investments
Limited which is authorised and regulated by the Financial Conduct Authority. Your capital is at risk and you may not get back the full amount
invested. Tax treatment depends on the individual circumstances of each investor and may be subject to change. Past performance is not a reliable
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as this product is not suitable for everyone we recommend you seek independent investment and tax advice before investing in our products.

EIS AdBee.indd
2015 297x210.indd
1
Steve
27

23/01/2015 14:50
16:39
19/03/2015

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

Steve Bee.indd 28

19/03/2015 14:50

STEVE BEE

March 2015

Comic Timing
Kapow! Steve Bee reaches for the popcorn

I have a bunch of
grandchildren these days
who, I am glad to say, share
some of my interests. Two
of them are just as keen to
watch old Tom and Jerry
films as was when was
young. Mind you, they both
watch them in colour on
their own iPads, whereas
I used to watch them in
ickering
-line black and
white on our TV at home (as
long as it didnt overheat
of course, in which case
the screen went completely
grey - but on the plus side
you could still hear the
soundtrack). I did get to see
them in glorious Technicolor
once a week, more often

IFAmagazine.com

Steve Bee.indd 29

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19/03/2015 14:50

March 2015

than not at the Saturday

morning pictures (I was a
Junior of the ABC, and I still
have the badge to prove it).
Quite unsurprising really.
The humour in Tom and
Jerry is apparently timeless:
the little chaps who are the
latest in our family to appreciate
slapstick laugh in all the right
places and absolutely howl when
things go badly awry for Tom.
Punch Lines
The problem that Tom has - as
I said when trying to explain
the essence of humour to them
(absolutely pointless as it turns
out) - is that hes always in the
wrong place at the wrong time.
In his world, that means that
he will more often than not
turn a corner, only to tread on
a rake that immediately whips
up and smashes him in the face
as Jerry makes his getaway.
Even when things seem to
be going his way, Toms luck
always seems to run out. He is
often just seconds away from
finally hitting erry on the
head with a massive mallet or
something, only to find that,
when he brings it crashing
down on what he supposes to
be Jerry, it turns out to be the
foot of Spike the bulldog. And
once Spike has Tom by the neck,
even his over-the-top charm

30

Steve Bee.indd 30

STEVE BEE

cannot ever save him from

the most dire consequences.
And Ive simply lost count of
the times that Tom eventually
catches Jerry and holds him
gleefully while looking directly
at the camera, without the
slightest clue that the anvil
all we viewers had earlier
seen launched skyward in a
freak accident at the nearby
Acme building site is, even at
his moment of glory, heading
straight for the very spot
where he has chosen to stop
and savour his triumph.
Wrong place, wrong
time. Always.
Jerry, on the other hand,
has the knack of usually being
in the right place at the right
time, or at least being in the
wrong place at the right time
when he might see the trap
Tom may well fall into if he
simply stops to either whistle
to him or poke his tongue out
while waving his hands with
his thumbs in his ears.

IFAmagazine.com

19/03/2015 14:50

March 2015

Stage Fright
Being in the right place at the
right time, or even being in
the wrong place at the right
time is clearly preferable to
being in the wrong place at
the wrong time. Ive been
thinking about that a lot
lately, while thinking about
the million or so smaller
employers who are soon about
to reach their staging dates.
All the experience thus
far, as the larger employers

have staged, has shown that

auto-enrolment, while hard
enough to comply with, is
doubly difficult if firms do
not leave themselves enough
time to prepare for things.
million or more firms
are right now rushing at
headlong speed into autoenrolment. Some are well
aware of that, and are well
prepared for what they must
do. For others though, autoenrolment might well turn

out to be the rake on the oor

just around the next corner.
And thats not funny.
I dont think it is yet too
late for people to help such
firms, but cant help wondering
whether a Government
advertising campaign warning
employers to watch out might
be more appropriate than
the current ads that focus
on employees being in.
Perhaps Tom and Jerry
could even star in the ads?

Being in the
right place
at the right
time, or even
being in the
wrong place
at the right
time is clearly
preferable
to being in
the wrong
place at the
wrong time

IFAmagazine.com

Steve Bee.indd 31

31

19/03/2015 14:50

Welcome to London Capital Club

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Steve Bee.indd 32

19/03/2015 14:50

INSIDE TRACK

March 2015

All Mapped Out

Neil Martin talks to Mike Parsons, Managing Director,
JPMorgan Asset Management

Managing Director Mike

Parsons, who is Head of UK
Sales at JPMorgan Asset
Management, provides a
quick and somewhat concise
snapshot of his abilities
after studying geography
at Exeter University.
could read maps, do the
colouring-in and add-up in
numbers, he says. Skills which
have obviously stood him well

throughout his career, as he

progressed from Fidelity, into
Schroders and then landing
at P Morgan in 2007.
He had three interviews
when he left university, he
says, and he decided that
the job in financial services
looked the most interesting.
nd he actually started in a
Fidelity call centre, dealing
directly with clients and
getting what he described as a
fantastic start in the sector.

You absolutely get to

understand, and its the one
thing thats drilled into us here
at JP Morgan, that this is a
fiduciary business. That we are
managing other peoples money,
and we put their interests first.
ou can never lose sight of
the fact that there is an endinvestor, and were investing
their money and were entrusted
to look after their money, and
generate returns for them.
Get With the Programme
Whilst at Fidelity, Parsons
moved from the consumer end
of the business to dealing with
F s. Some 20 years later, he

IFAmagazine.com

Inside Track - JP Morgan Chase.indd 33

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19/03/2015 14:49

March 2015

INSIDE TRACK

to meet thousands of F s
throughout the year and
are each built around the
particular insights of one of P
Morgans global strategists.

now heads up
a number of
teams that deal
with F firms,
life companies
and stockbrokers.

Perhaps the best well

known of the current roster is
former
Economics Editor
Stephanie Flanders, whos

The thing with Stephanie

is that shes asked to speak all
over the world, so its not always
possible to get her out to every
venue, every quarter. ut we try
to make sure that she gets good
air time with all of our clients
over the course of the year.

ndependent financial
advisors are taken very
seriously indeed. We have
very strong relationships
with the larger regional F s,
where we look to have regular
meetings, and very in-depth,
one-on-one relationships.
would expect my team
to see their client base at least
every quarter and sometimes
its once a month, where the
firms are sophisticated in their
needs. They might have five or
six people doing fund selection
within that firm, so we have
to go and see a lot of people to
understand their business.
Parsons says that a great
deal of contact comes at the
quarterly roadshows which form
part of the P Morgan sset
Management Market Insights
Programme. This programme
is a framework of research and
current market analysis that
is delivered to K advisers.
The idea is to illustrate an
array of market and economic
histories, trends and statistics
through clear, compelling charts
and graphs that advisers can
share with their clients.
Started some ten years
ago, Parsons says that the
programme has gone from
strength to strength. nd at the
core of it all is whats known as
the Guide to Market. This is a
markets-based chart book, of
which there are five regional
versions. t is translated
into 12 local languages
distributed in 25 countries.
Hit The Road
The roadshows, held in more
than 20 cities held each
quarter, allow P Morgan

34

Inside Track - JP Morgan Chase.indd 34

Having someone of
Stephanie Flanderss standing
and reputation must surely
prove a big draw for P Morgan
es, without doubt. ut we
also have another group,
within Stephanies team, who
are bright and really good
strategists, and are good at
articulating the message.

s youd expect, the

roadshows are also an important
channel for selling the houses
products So whenever we take
one of the strategists out, we

currently P Morgans chief

market strategist for the K
and Europe. She and her team
produce market research and
issue bulletins to advisers about
key market developments,
aiming to place investment
implications into context.
Parsons is a firm believer
in their guides and road
shows. We give our insights
into capital markets, and that
really is one of the best ways
to help IFAs, interpreting
the key trends and nuances
of capital markets.
We are able to articulate
whats going on in a relatively
simple format which is useful
for their end-consumer.
Obviously markets move very
quickly and they are incredibly
complex. So what were trying
to do is bring clarity to the
markets, so advisers can a.
formulate their own thinking
about asset allocation and b.
articulate that to their clients.
There is no shortage of
comment and information that
its around from fund groups
and the internet - the idea of
this is that we can bring it
all together in one place.

then also talk about a product,

a fund that we think is topical,
or interesting, and relevant to
the audience. So that should
help to make it a commercial
success for both parties.
RDR and Afterwards
s for how the F industry has
moved on after
, Parsons
is upbeat: I think that almost
all of the firms we talk to, are
saying that business has never
been better. Obviously there
are fewer advisers these days,
so the simple economics of
supply and demand indicates
that those that are still trading
should be in a better position.
nd pretty much everybody
were talking to is saying that
there are issues about capacity.
m not saying that all F firms
want to grow their capacity,
but they can afford to be choosy
about the clients they bring on
board, which is a phenomenally
strong position to be in.
n terms of F s
development during the 20
years that Parsons has worked
in the sector, he is also very

IFAmagazine.com

19/03/2015 14:49

March 2015

impressed. t has moved from

a very transactional industry
to a much more relationshipbased profession, he says.
ust from a simple point of
view, the questions we are
getting asked and the analysis
that is done on our funds is so
much more advanced than it
was five years ago, and very
much better that ten years ago
- and almost unrecognisable
from 20 years ago.
Developing the Adviser
Market Further
s to the future, Parsons is
also upbeat. ut, he adds, the
one thing we will all have to
do - and this is not just specific
to F s but everyone in the
industry - is work on consumer
trust. nd while that sounds
simple, its phenomenally
hard for an industry, or a

profession, to rebuild trust.

ts very clear that the clients
who use an F , must be able
to trust them implicitly. One
of the reasons why people
dont use an F is cost of
course, but the other is trust.
The key question for
Parsons is how collectively the
industry can get consumers
engaged with the financial
services industry and how
it properly demonstrates
its ability to add value.
Market Direction
sked what advisers are
currently focusing on, Parsons
says that Europe and the
S loom large. Particularly
important is how the new
QE programme in Europe
will affect the long term
prospects of the euro currency
and certain asset classes.
He added that IFAs are
currently most nervous about
the fixed interest market, as
rates are at incredibly low

levels which will obviously

need to rise in the future.
also think you can
expect that capital markets
will be a bit more bumpy going
forward than they have been.
dvisors are aware of this and
are positioning in diversified
funds to mitigate what might
happen in the future.
Spare Time?
The interview finishes with
the inevitable question about
how Parsons spends his leisure
time. ou might think that
given the intensity of his job,
winding down with a gentle
pastime might be in order,
but Parsons says his favourite
sports are those that require
a liberal squirt of adrenaline.
lthough he admits, as a father
of three young children, he gets
less time to indulge in such
activities than he used to. He
now has to settle for a single
mountain bike ride every week.
nd that, together with
heading up the team of
intelligent people who sit within
JP Morgan, ought to be enough
adrenaline for anyone.

There is no shortage
of comment and
information that flits
around from fund
groups and the
internet - the idea
of this is that we can
bring it all together
in one place

IFAmagazine.com

Inside Track - JP Morgan Chase.indd 35

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19/03/2015 14:49

March 2015

GUEST INSIGHT

The Yield
Anomaly
It is interesting to think
about how much investors
have been surprised in recent
years, perhaps often without
realising it. For example, the
performance of mainstream
government bonds over the
past 18 months or so has
brought yields in some parts
of that market to a level that,
some time ago, most people
would have considered not
just unlikely, but impossible.
Now, the consensus seems to
believe that negative real bond
yields are perfectly plausible.
This is because most investors
frameworks are based on their
most recent experience, which
can make them quite easily
forget what they used to believe.
For us in the M&G Multi
Asset team, the key is to
approach investment decision
making with humility. That
means being honest with
ourselves about how much
unique insight we can really
have, and accepting how
much there is that we cannot
know or be sure about.
This allows us the mental
exibility to expect to be
surprised, even if we cannot
know when or how. We believe
it is rarely a surprise when
market forecasts turn out to

36

Guest Insight - M&G.indd 36

be wrong. t is very difficult

to get these things right on a
consistent basis, because there
is really very little anyone
can know about the future.
Focus on Valuations,
Not Forecasts
Therefore, most predictions are
actually based on investors
most recent experience of the
past. In our view, investment
decision making should avoid
forecasting and focus instead
on what valuations today are
signalling about how attractive
different assets may be, in
the current environment.
This process can be more
difficult than it sounds. The
temptation to try and forecast
markets may exert a powerful
emotional pull on investors.
It can be very uncomfortable
to admit that we do not know
what the future has in store.
We believe the best chance
we can give ourselves of
navigating such uncertainty is
through disciplined adherence
to an investment process
that focuses on the facts.
For us, a framework based
on observable facts about where
asset valuations are today versus
where they have been in the past
creates rigour and discipline.

Just focus on the

facts, say the M&G
Multi Asset Team,
and an important
perception
begins to dawn

However, it should not mean

trying to create a mechanistic
perspective. There is danger in
being too anchored. Therefore,
we overlay our valuation analysis
with questions about why
valuations might have moved
away from long-term averages.
Sometimes, it is a shift in the
fundamental economic facts.
But more often, we feel it is a
shift in sentiment - which is
less likely to be permanent.
The Yield Conundrum
When we look at the value
on offer across the global
investment landscape today, the
immediate question for us is:
with real cash rates negative,
why would anyone still be
happy to hold cash, when it
costs them money to do so?
Some real bond yields, even at
the long-end, are also very low
nominal, or even negative real.
Yet, even today, we still see
huge demand for perceived safe
haven government bonds. Even
credit yields are not particularly
attractive relative to historical
norms. In fact, in developed
markets today, only selected
equities are offering attractive
real yields. Even though equities
have performed well over the
past couple of years, valuations

IFAmagazine.com

19/03/2015 14:52

March 2015

in many regional equity markets

remain attractive with real yields
still higher than historical trends
and consensus forecasts suggest
they should be, according to our
valuation framework (see chart).
Equities at a Discount to Risk
In our view, the global
fundamental picture today
points to continued gradual
recovery, albeit with much
regional dispersion, rather than
another likely recession. Trends
in terms of profits and growth
are positive in most places, while
global policy remains largely
very accommodative and the
recent collapse of the oil price
could provide a very meaningful
boost to growth. Therefore, our
central observation in terms
of strategic positioning at the
moment is that equities are
currently being offered at a

significant discount, at a time

when the global economy is
actually doing just fine. We
think this situation is the result
of risk aversion, short-termism
and a lack of willingness to wait
for opportunities to pay-off over
a medium-term time horizon.
The Mental Scars from 2008
We believe the reason for the
ongoing distortion in risk premia
shown in the chart below is
attributable to behavioural
factors. In our view, investors
continue to struggle with
the mental scarring of the
2008 financial crisis, which is
causing them to demand too
much compensation to hold
so-called risk assets. Macro
uncertainty persists and over
the past 12 months or so,
we have observed a notable
shift in investor sentiment.

While the facts about the

global economic outlook have
been broadly improving, investors
still seem to be struggling to
accept that a well-seated recovery
is indeed underway, because
they are anchored by their recent
experience in a fragile global
outlook. This means, even while
maintaining a positive economic
outlook, we should except a
considerable degree of volatility
across financial markets over
the period ahead. One thing we
can be fairly certain of is that we
will be surprised this year. Most
likely by factors that no-one has
even thought of yet. However,
in our view, short-term volatility
should not be confused with
genuine risk (which we believe
is the potential for permanent
capital loss), and may actually
present some compelling
investment opportunities.

Yields, February 2015

IFAmagazine.com

Guest Insight - M&G.indd 37

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19/03/2015 14:52

March 2015

B R I A N TO R A

Numbers,
Just Numbers
Brian Tora says its stupid to get fixated on indices

With more of a whimper

than a bang, the FTSE 100
Share Index eventually
clambered over the peak
set back in December 1999.
And, clinging on with its
fingertips, it was not too
long before this benchmark
index slid back down again.
It was all a rather dispiriting
sight. There must be many
who, like me, had hoped
the Footsie would storm
past 7000. Well, perhaps it
has since then because
you, unlike me, have the
blessed gift of hindsight on
your side - but as market
highs go, it did not look
too convincing to me.
Should we really read so
much into these truly artificial
barriers, though? And how
reliable an indicator of a markets
performance is an index anyway?
The misleading nature of
these oft quoted benchmarks was
brought home to me when I read
that at last Apple is to join the
Dow Jones Industrial Average.
And why not? It is the worlds
largest company in terms of
market capitalization, after all.
Not that this apparent
elevation means a thing. It

38

Brian Tora.indd 38

will be replacing American

Telephone & Telegraph or
AT&T for no better reason
than both are considered to be
technology stocks. The Dow
Jones is meant to cover all
major industrial sectors, but
that is where any meaningful
representation of what is going
on in corporate America ends.
Selection by Bulk
This index is weighted according
to share price. In other words,
the greater the price of the
shares, the greater the in uence
on index performance. Other
indices, like the S&P 500
or our own FTSE 100, are
weighted according to market
capitalization a far better
representation of what is going
on in the underlying market.
And just imagine what happens
when a company decides to
split its shares, effectively
halving its share price?
Believe me, it has happened.
Not that the way in which
our own indices are compiled
is without fault. Most people
consider the FTSE 100 to be
an index of the 100 largest
companies listed on the London
Stock Exchange. Well, it is,
but only sort of. You only gain
automatic admission if you rank
90 or higher in capitalization
terms, and you will only be

expelled if you drop below 110.

There is considerable discretion
allowed between the rankings
10 either side of 100. And the
rules even allow for a few more
or less than 100 to be included.
Rules Are Made To Be Broken
This discretion is intended to
ensure that companies do not
drop in and out of the index on a
regular basis, and also to allow
changes to be confined to the
four quarterly reassessments
of the year. But the nature of
which companies actually go
to make up this magic group is
another kettle of fish altogether.
You might wonder how
it is that the FTSE 250 and
major indices in both Europe
and the US managed to set new
highs several years ago, while
we had to wait more than 15
years to see the Footsie do the
same? The problem is twofold.
First, it is companies listed
here that qualify, regardless
of whether their business is
conducted in the UK. And of
course, such is the prestige of a
London listing that all manner
of companies have their primary
quotation in the square mile.
Curse of the Mega-Zombies
Second and even more
relevant has been the in uence
of certain sectors on index
performance. Back in the days
before the financial meltdown,
it was banks that exerted the

IFAmagazine.com

19/03/2015 14:54

March 2015

Tiger Tales

greatest in uence on our indices.

So when Northern Rock went to
the wall and Lehman Brothers
expired, the share prices of these
financial eviathans evaporated.
Markets all over took a tumble,
of course, but the banks - now
beholden to British taxpayers
- failed to enjoy the recovery
that was seen elsewhere.
Initially, their place was
taken by resource stocks those
mining and oil companies that

were benefiting from a buoyant

China. And when those too
turned sour a few years ago,
the Footsie foundered. Little
wonder that it has taken it
so long to play catch up.
At times, the composition
of an index has proved highly
misleading. Back at the turn
of the millennium, a current
joke was to ask what do you
call a Finnish market tracker?
Answer, of course, Nokia. (At
one time it represented up to
90% of the Helsinki markets
capitalisation.) And where is
Nokia today? Its all over the
papers, and it isnt good reading.

In the 1980s I was a director

of a fund management group
that launched a so-called Tiger
tracker aimed at replicating
the performance of seven
small Asian markets. It
consistently underperformed
its benchmark in the early days
- not that anyone noticed.
The message here is clear.
Dont be led into believing
that passing barriers like a
previous high are important
in themselves. And always
remember that index trackers
need as much careful research
as any other type of fund.
Brian Tora is an associate with
investment managers, JM Finn & Co

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

Brian Tora.indd 39

39

19/03/2015 14:54

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 ong
Term Care, investment, ta
planning and quity 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
ichards experience as a ank
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
o-ordinator for orset.
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

I FA V I E W

March 2015

Rethinking
the
Model
Neil Martin talks to John
Spiers, CEO of Crossover
Wealth Manager EQ

ou get the sense from

ohn piers, founder of
estinvest and now C
of
, that hes going to
en oy being at the helm
of his new vehicle.
EQ? Thats Emotional
Quotient, and its the rebadged
financial planning arm of
Truestone, which Spiers
bought in October 2014. t
that time Truestone had an
estimated 500 million of
assets under management and
a staff of 45. nd its now a
stand-alone, full service wealth
management and financial
planning firm with a full
re-launch happening in May.
Top Billing
The company has just
announced a number of top
level appointments, with many
of Bestinvests stars crossing
over into new roles at E .
The Bestinvest
incomers at EQ are
Mike Neumann
(previously
director of
investment
management
at Bestinvest);

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IFA View - EQ.indd 41

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19/03/2015 14:55

March 2015

Andrew Rees (formerly

associate director and
investment manager);
Katharine Lindley
(Bestinvests director of
financial planning, and a
multiple prize winner); Sophie
Muller (associate director
and fund research analyst)
and Kate West (senior
investment administrator).
nd finally theres aniel
Bland, who moves from his
previous role as investment
manager at uilter heviot.
Okay, we had to ask the
obvious question. What does
Bestinvest think of losing
five of its senior staff ack
came the equally obvious
reply: Youd best ask them
that. Okay, point taken...
Moving on quickly,
Spiers admits that he was
very pleased to be able to
recruit such top staff: Im
attered that such top people
are joining me. ts starting
to feel very interesting. m
absolutely delighted to have
been able to assemble such
a strong team to support the
launch of this company.
The people weve hired
today are all well known to
me, and I know they are the
right people to launch this
service. ts a tremendous
vote of confidence in E .
Two Organisational Arms
s youd expect, E will
have two main divisions. ut
instead of the conventional
management/advisory split,
the company has gone for a
vertical segmentation. On
the one hand, EQ Wealth will
focus on a bespoke investment
service that offers face-toface financial planning and
is aimed at private clients,
companies and charities
with lump sums of 750,000
or more. nd on the other,
EQ Direct will be providing
a low-cost discretionary
service which is aimed at
those with 15,000 to invest,
or around 1,000 to save.
Spiers points out that the
new approach will allow EQ

42

IFA View - EQ.indd 42

I FA V I E W

much greater customisation

of portfolios to cater for
individual client preferences
and tax optimisation. The
aim, he says, is always o
deliver clients long-term
investment needs by allowing
them to build a portfolio that
is customised to their needs.
Owned By Its Staff
EQ describes itself as a
different kind of company
in more ways than one. t
is owned by the staff, and it
has no external shareholders.
Which means that it can
be built, says the company,
around delivering clients
ambitions, rather than
having to compromise to
meet short-term targets.
The lack of shareholders
might relieve the staff of
EQ of being answerable to
outsiders, but does it put
pressure on the staff when
having to fund further growth
themselves, or guard against
a lower fee turnover?
Spiers is adamant that
this is a better position to be
in: We are very fortunate,
in that we dont have to
please external investors.
The business is in a positive
position and I have no
intention of selling it. f we
need funds for acquisitions,
or other deals, we will raise it
internally. We can focus our
attention on the clients.
EQ, whose 50 staff
will be based in new
offices at entennium
House, aims to have a
highly ethical approach
and will, it says, base its
business on achieving
the highest standards of
integrity, client service
and investment returns.
The advisers are mostly
chartered and the company
has the same status. Spiers
said that around 45% of
the equity will be released
to staff in the future to
act as an incentive.
Going Back A Long Way
Spierss record with

Bestinvest
goes back
as far as in
1986, when
he started the
company selling
it in 2007 to 3i,
which made him
a reputed 100m.
By 2008 he had
re-joined the
company, but he
left again when
Permira became
the new owners.
That EQ is
independent and
master of its own
destiny is crucial for
Spiers. He believes
that the time is now
right for a change as to
how people are advising
on managing their finances
and wealth. He says that
people are wary of the bigger
financial institutions who do
not always put their clients
interests ahead of their own.
The Ethical Imperative
But Spiers also believes that
being ethical is more than
just attaching a label to your
marketing. He is committed
to continuing to develop EQs
socially responsible vehicle,
the Positive Impact Portfolio,
which currently has assets of
20m under management.
The company has
also created a charitable
institution, the EQ
Foundation, which plans to
raise money for good causes
nominated and supported
by both staff and clients.
The Way Ahead
Spiers is confident that he
can cater for the growing
number of people that he
believes are demanding a new
kind of wealth advice, one
that matches the times. He
is disappointed that, at the
very time when regulation
has made financial advice
only available to the very
well-off, people are in need of
guidance more than ever.

IFAmagazine.com

19/03/2015 14:55

March 2015

E , he says, is meant to fill

the widening gap and provide
a genuine alternative within
the financial services
sector. His aim
is to make

quality advice more accessible.

The focus, he says, has to be
on offering value for money
products driven by the efficient
use of technology. t has to
be all about concentrating
on maximising returns.
Perhaps some idea of its
growth plans comes within the
official announcement of
the appointment of
its new staff.

t said about its new offices

which are opposite the Shard:
on a 10 year lease
with capacity to
double current
staff
numbers.
So there
we are.
Hows
that for
confidence

We are very
fortunate, in that
we dont have to
please external
investors. The
business is in a
positive position
and I have no
intention of selling it.
If we need funds for
acquisitions, or other
deals, we will raise
it internally. We can
focus our attention
on the clients.
John Spiers

IFAmagazine.com

IFA View - EQ.indd 43

43

19/03/2015 14:55

G U E S T F E AT U R E

March 2015

Platform Overkill
Platform Diligence is essential, says Defaqtos Gill Cardy,
but theres such a thing as too much complexity

I expect that this isnt the

first article and it certainly
wont be the last on the
sub ect of due diligence,
given that the inancial
Conduct uthority is
going to be talking to
us about it in 2015.
However, its worth taking
a look at what exactly due
diligence is, given that the
F
is typically vague, or
principles-based, about what
it expects from the regulated
community on the subject.
There will be particular
areas where the regulator will
focus high risk or complex
products, and those which
add costs for the client. nd
it is in this last area where
platform due diligence is
particularly relevant.
Paying for More Than
You Can Use
ts an unfortunate urban myth
that the F
hates higher
cost products or services. But
there are two things about
costs that the regulator really
does hate with a passion
n

That consumers do not

know about or understand
higher costs; and

44

Guest Feature - Defaqto.indd 44

That consumers do not

benefit from the extra
services provided for
those higher costs.

One client was

recommended a self-invested
pension to benefit from the
investment exibility, but
was then invested into one
single balanced managed fund.
nother example that might
relate more specifically to
platform advice would be the
client who was recommended
to invest on platform for all tax
reporting functionality, but for
whom the ability to undertake
apital Gains Tax calculations
was irrelevant, given that all
his investments were held in
ISA and pension wrappers.
A Matter of Definition
So what exactly is
due diligence?
t is, of course, the research
and analysis of a company,
person or investment which is
routinely done in preparation
for signing a contract or
entering into an agreement or a
transaction. t serves to confirm
all material facts, including
actual or potential risks, relating
to the proposed transaction.

nterestingly, some
definitions refer to the duty
of each party to confirm
each others expectations
and understandings, and to
each independently verify
the abilities of the other
to fulfil the conditions and
requirements of the agreement.
This raises the intriguing
prospect of a product provider
undertaking due diligence
on the firms or clients who
introduce business to them.
couple of providers already
do this - mainly in the model
portfolio and discretionary fund
management space - but making
it a widespread practice would
be an interesting concept.
Learning to Be More Forthcoming
y now we might be getting closer
to understanding the thrust
of the F s thematic review.
We already know that this will
focus on the advisers role in the
due diligence process, looking
at how advisers assess products
and services and what barriers
they may face in the process.
ts comforting to realise
that the regulator does at least
understand that advisers may
face difficulties in undertaking
proper due diligence. Advisers will

IFAmagazine.com

19/03/2015 14:56

G U E S T F E AT U R E

welcome a clear statement of the

regulators expectations of product
providers when being asked about
their products and services.
Good due diligence implies
one party asking the right
questions and a second party
giving the right answers.
However, in our regulated world,
due diligence shouldnt be a
parlour game where providers
only answer the questions they
are asked, no more and no less.
It should not be up to advisers to
frame exactly the right question
in precisely the right way in order
to get the information they want.
Providers who react in this way
to due diligence enquiries could
face a backlash from advisers
unwilling to do business with
such taciturn companies.
Focus on Client Outcomes
The regulator has also sought
to remind us that in their view,
some advisers are failing to put
client outcomes at the heart of
due diligence, and platform due
diligence in particular. This is
because the platform is paid for
by the client, with the F
clearly
expecting advisers to be acting
in the clients best interests, and
getting the client a good deal.
The F
knows
that adviser firms collect
information packs from
platform providers, to evidence
undertaking due diligence.
There are two problems with
this. Firstly, having received
the information, we should do
something with it. We should be
inquisitive about its real meaning,
and critical about what we are
being told - not just collecting
reams of brochures and reports.
The second problem is
that, even if we do undertake
proper analysis and research, it

IFAmagazine.com

Guest Feature - Defaqto.indd 45

March 2015

should be on the right subjects.

For the regulator, the right
subjects are those which relate
the product research and
eventual recommendations
to the suitability of the
proposed transaction for the
firms clients, not the firm.

online functionality, discretionary

fund manager links).

Cost Considerations

Other information may

be harder to find, including
more qualitative information
such as the providers target
client segment, or future plans
for product development.

es, of course a firm may benefit

from the advantages of platform
use - but so should the client.
More radically, if the platform
saves an advice firm time in
investment administration,
portfolio construction, reporting
and reviews, how does the firm
pass on those cost savings to
the client who has paid the
price for all these facilities
So what should
advisers be asking
First, take a step back and
ask yourselves what you consider
the purpose of the due diligence
to be. eveloping your research
process requires a preliminary
exercise in deciding within
your business in general and
for your clients in particular
what good and bad) looks like.
These are the characteristics
which you then deliberately
seek out, or seek to avoid.
Key Questions
Setting high level research
criteria with strong clientfocused logic will focus the
mind on what questions to
ask, and what answers may
or may not be acceptable.
gree features, some of
which would be applicable to
all firms with which you do
business financial strength,
years in business, profitability)
and others which may vary
according to the product being
considered annualised volatility,

Some information,
particularly factual data on
pricing and product terms
and conditions, is easily
and cheaply available from
commercial research providers.

Finally, agree a review

schedule for this process.
eview frequency is especially
sensitive for platform advice
where switching clients from
one provider to another can be
costly for both client and adviser,
in term both of the time and the
transaction charges involved.
Constant Change is Here to Stay
Platforms change, just like any
other product. Features are
added, and pricing inevitably
changes - and suddenly a
proposition that represents a
good deal for the client now
might be very different in
five years time. However, a
platform which suitable for new
clients may not be sufficiently
different in terms of features
or charges to merit switching
an existing platform client to
the new preferred provider.
We have to wait to see
what the F
considers to be
good or poor practice in adviser
due diligence. ut keep your
client and what is right for
their individual circumstances
front and centre of your
recorded platform due diligence
process and you may not be
too wide of the mark..

45

19/03/2015 14:56

BURNING ISSUES

March 2015

Still The
Big Country
Theres plenty of room for
more growth, says our
Burning Issues panel
This years impressive
performance from US
financial markets has got
analysts on this side of the
ond worried. tateside
e perts assure us that a
prospective price earnings
of
on the
- and a
cyclically ad usted p e of
is nothing to worry about.
Why not? Because Americas
core strengths are coming
through, they say. A healthy
population structure and a
high level of policy stability
are combining to set America
aside from the worries that
are now clouding the horizon
in Europe or in Asia.

Meet the Panel

Tom Elliott

International Investment
Strategist at deVere Group

Wouter Volckaert

Fund Manager of
Henderson Global Trust

Kerry Craig

Global Market Strategist at

JP Morgan Asset
Management

Jaisal Pastakia

Investment Manager at
Heartwood Investment
Management

46

Burning Issues.indd 46

Question 1:
Some Wall Street traders are calling
this the most hated rally in history. By
which they presumably mean that they
feel Februarys boom in equity values is
being driven by something other than
corporate fundamentals. Your thoughts?

Tom Elliott
Februarys rally was perfectly
rational. Against a background
of Janet Yellens assurance
that the Fed would be
patient in introducing its
long-awaited hike in interest
rates, the equity bulls could
enjoy the good growth data
coming from the US and the
UK, and signs of improving
business confidence in the
beleaguered euro zone. To
cap it all, the ECB was set to
launch QE, putting pressure
on the euro and boosting
euro zone exporters and
stock markets in general.
Other market participants
were nervous of this rally,
warning that the Feds
statements on monetary policy
were not as clear as the bulls
would have us believe. Their
chief exhibit was the minutes
of the last Fed meeting, that
showed the average forecast
amongst Fed monetary policy
committee members for
interest rates at the end of
2016 was 3.5%. This contrasted

with the market pricing

in just 2% by end 2016.
As Simon and Garfunkel
said, A man hears what he wants
to hear and disregards the rest.
This week we have seen the
penny drop, triggered by last
Fridays strong non-farm payrolls.

Kerry Craig
There certainly isnt a lot of
euphoria surrounding the US
equity market at present. It is
natural for investors to question
how much juice can be squeezed
out of a market that has just
entered its seventh year of
a bull market run, and is up
over 220% during that time.
However, both economic
and corporate fundamentals
remain strong in the US relative
to other regions and while the
valuations are no longer as
attractive as they once were
neither are they screamingly
expensive. A combination of
earnings growth, share buy
backs, M&A activity and higher
consumer confidence will
continue to support the market.

IFAmagazine.com

19/03/2015 14:59

March 2015

All the same, investors

should temper their return
expectations in a market this
elevated, and should focus
on the attractive sectors and
companies rather than the
broad market while expecting
higher levels of volatility.

Wouter Volckaert
The S&P500 has gone up
threefold in USD terms since
bottoming on 9 March 2009 and
is trading near an all-time-high
level. We are six years into a
market rally, and by now you
would expect your mother-inlaw to be bragging about her
latest investment triumphs
and your cab driver to be a
source of hot trading tips.
However, none of that is
happening. We are seeing some
behaviour that is associated
with being well into a market
cycle for example a burger
chain with less than 100
stores coming to the market
with a value of over $1bn
but we are not hearing many
people talk about newfound
riches in the stock market.
That is why I would call it
the most unloved bull market
I have ever witnessed.

IFAmagazine.com

Burning Issues.indd 47

The disparity between

share price returns and
investor sentiment can
largely be explained by the
fact that the stock market
has mainly gone up on the
back of multiple expansion.
I like to think of the stock
market as a mathematical
formula: P = P/E x E. The
market (P) can go up on the
back of growth in the earnings
generated by the companies
listed on the stock market (E),
and on the back of the multiple
that investors are willing to pay
for this (P/E). The E is correlated
to the economy, and therefore
hasnt expanded that much over
the past six years. Instead, the
market has gone up on the P/E
going up, or so called multiple
expansion. The key driver for
this multiple expansion has been
excess liquidity. Quantitative
easing and low interest rates
have created surplus capital
which chased asset classes
worldwide from equities
to bonds, London property,
vintage cars and fine wines.
So excess liquidity leading
to multiple expansion has been
the key driver behind equities.
That doesnt feel as comfortable

to people as a booming economy,

big salary increases and rosy
newspaper headlines. And
weve had quite the contrary
austerity talk, the threat of
de ation and the possibility of
a break-up of the European.
That explains why this is the
most hated rally in history.

Jaisal Pastakia
We do not believe that the
US market is fully pricing in
declining earnings expectations.
The speed and the severity of
the fall in earnings expectations
since the start of 2015 have
been unusal (EPS growth
estimates have fallen from 9%
to 2%.) Of those companies that
have announced disappointing
earnings results, almost all
have highlighted the strong
dollar as the main factor
holding back earnings.
It is important to remember
that, at a market level, in
the short term, there is little
correlation between earnings
growth and market performance.
However, at some point earnings
do have to come through to
support higher valuation
multiples, which are moving
up to levels last seen in 2007.

47

19/03/2015 14:59

March 2015

Question 2:
The numbers
suggest that the
US economy
has shown
remarkable
resilience
recently: the Q4
GDP growth of
2.5% was better
than expected,
and it seems
to indicate an
even stronger
2015. Industrial
production was
up 4.8% year-onyear in January.
Isnt there genuine
reason for
optimism there?

BURNING ISSUES

Jaisal Pastakia

Tom Elliott

We are cautiously optimistic

on economic growth. The US
economy is growing but only
at a moderate pace relative
to previous recovery cycles.
In fact, data releases in the
first quarter have been mixed.
Regional manufacturing survey
reports have disappointed and
retail sales have been weak.
The bright spot has been
the labour market, which is
showing robust job creation.

US economic growth looks robust.

But the headwinds from higher
US interest rates threaten
sock markets in two ways.

February capped a one year

period of successive monthly
job gains exceeding 200,000.
A tighter labour market bodes
well for wage growth, which has
been lagging (around 2% yearon-year), and should support
consumption, already benefiting
from as lower oil price. Headline
in ation remains very low,
although core in ation excluding
food and energy) had its strongest
increase in January since October
(+0.2% month-on-month). Over
the longer term, we expect
in ation pressures to reach the
Feds target of around 2%.

Wouter Volckaert
The end of quantitative easing
in the US and the outlook for
interest rate hikes means
that excess liquidity will
gradually disappear, and
so the years of multiple
expansion driving equity
markets are over.
Economic momentum
and corporate earnings
growth now need to take
over as a market driver.
Fortunately the latter is
recovering and therefore
there is indeed genuine
reason for optimism.
fter five moderate
years, we are finally
seeing a more meaningful
pick-up in corporate
investment and credit
growth. Unemployment
has fallen to the level
where we are starting
to see wage growth.
And a lower oil price
should provide a nice
tailwind for oil importing
countries such as the US.

48

Burning Issues.indd 48

First, high dividend bond

proxies such as utilities, pharma
and other sectors associated with
generous dividend yields but
slow profits growth, may suffer
as investors look for income from
less risky sources. A dividend
yield of, say, 2.5% may look good
if you can only get 0.01% on your
bank deposit account and a 10
year government bond yields
2% but with no opportunity of
capital growth. But what if the
bank account cash, or the 10 yr
Treasury yield, goes to 3.5%?
We can almost hear the sucking
sound of cash leaving the bond
proxy part of the stock market,
with large, mature defensive
sectors particularly badly hit.
The second headwind caused
by higher US rates will be on
currency, as the USD rallies
in response and hurts export
earnngs from US companies.

Kerry Craig
The recent economic data from
the US has come in below
expectations and forecasts for
first quarter economic growth
have been revised down.
Some of this is due to one off
weather impacts, but also
concerns about weaker than
expected consumer spending
even with lower energy costs.
Despite this, the economy
should see respectable
growth at close to 3% this
year, largely driven by the
consumer. The labour market
continues to tighten and on
average 288,000 jobs have
been added each month for
the past three months and
the unemployment rate has
fallen to 5.5%. Wage growth
has been stubbornly slow to
increase, but as the labour
market tightens wages should
start to increase and, more
importantly real wages
will rise because in ation
is at low levels providing
a consumption boost.

IFAmagazine.com

19/03/2015 14:59

March 2015

Question 3:
Fed chairman Janet Yellen has
strongly intimated that US interest
rates are likely to head upward
in the next nine months. The
markets seem to have taken that
as good news, since they were
expecting the tightening to come
earlier. Is that fair comment? And
are they just setting themselves
up for a bigger downturn
when it eventually comes?

Jaisal Pastakia
At the start of the year, all the
focus was on the European
Central Bank, but in early
March that has started to
shift back toward the Fed.
The ending of the Feds zero
interest rate policy is nearing
reality as we approach midyear, and it is being most
prominently played out in
the foreign exchange markets
with the rise of the US dollar.
While Fed tightening is not
a surprise, the ramifications
of a strong dollar are
undermining the profitability
of some of the larger USbased global corporates, as
well as creating uncertainties
across asset classes,
particularly in emerging
,markets and commodities.

Wouter Volckaert
The equity market always takes
a break when the interest rate
cycle turns, but the break tends
to be short and the correction
not that large (less than 10% on
average). Once we move past the
initial uncertainty, the market

IFAmagazine.com

Burning Issues.indd 49

tends to focus on
the fact that the
interest rate hike
happened because
the economy has
strengthened and
equities resume
their upward path.
The bigger
risk would be if the
FED tighten too
much too quickly,
which I would
define as anything
more than 150bp
tightening in the
first 18 months
of the cycle.

Kerry Craig
The timing of the first rate
hike by the Federal Reserve
is the most anticipated event
of the year. There will be
increasing speculation and
market volatility as we get
closer to any potential lift of
date around the middle of the
year but the exact date will be
very much dependent on how
the economic data develops
over the coming months.

Markets hate uncertainty

and history shows us that in
the lead up to the start of the
interest rate cycle equities have
not performed well. However,
once the uncertainty is removed
and the hurdle of the first rate
increase since 2006 is past the
focus will once again be on an
economy that is healthy and no
longer needs a zero interest rate
policy. This should see equities
continue to move higher.

49

19/03/2015 14:59

March 2015

BURNING ISSUES

Question 4:
OPEC is
currently
working
on ways to
improve the
oil price.
Although its
efforts are not
guaranteed to
succeed, how
vulnerable do
you feel that
the US might
be to a rapid
rise in prices?

Kerry Craig
Consumption accounts
for nearly 70% of the
US economy, so any
factor which in uences
consumption will impact
the economic outlook
and drastically higher
oil prices would act as
a brake on economic growth
through higher fuel prices.
However, with a global
excess supply and the long lead
times to reduce production a
sharp rise in price is less of
a threat than a drastically
higher US dollar in the near
term. A strengthening currency
will create disin ationary
pressures in the economy and
has the potential to undermine
corporate earnings outlook
de ating equity markets..

Tom Elliott
I see USD 60 a barrel by year
end, in response to closure of
some shale production in the

50

Burning Issues.indd 50

US and increased demand

from the euro zone as economic
recovery continues. The Saudis
are unlikely to cut production
to boost the oil price, any
rise will be market forces at
work exactly as intended by
the Saudis when they began
raising output last summer.

Wouter Volckaert
We dont worry about this.
The supply of oil continues to
outstrip the demand and the
worldwide storage capacity
for oil is now close to being
full. Once the excess capacity
hits the market rather than
storage, we actually expect
the oil price to take another

leg down. OPEC requires

unanimity in its decisions and
Saudi Arabia is keen not to
subsidise the development of a
US energy market, so we dont
expect OPEC to step in and
cut production. Saudi Arabia
is willing to take a shortterm hit if it might benefit
them over the long term.

Jaisal Pastakia
The US economy is much more
insulated from the oil price,
with the shale oil and gas
revolution significantly reducing
the countrys dependence on
foreign oil since 2005. Imports
are at their lowest level
(around 30%) since 1985.

IFAmagazine.com

19/03/2015 14:59

Three

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Burning Issues.indd 52

19/03/2015 14:59

INVESTMENT DOCTOR

March 2015

Analyse This
What, if anything,
can we learn from
analysts forecasts?
Neil Martin, city editor
of IFA Magazine, in
association with Aviva
Investors, considers the
possibilities

Long, long ago, brokers

analysts were the invisible
face of investing. Hidden
away in broom cupboards,
they performed their
slightly tedious task
without ever getting any
glory. But with the Big
Bang revolution of the
1980s and the superheated
equity cult of the 1990s they
shot to media stardom.
And yes, there was a
glorious period when the
teenage scribblers properly
ruled the roost. We even got
used to reading about sellside and buy-side analysts,
who could be relied upon to
strike predictable sparks off
one another at any moment.
But more recently their stars
have waned, with many fund
managers now using their own
internal research - preferring
their house stamp on what they
are being told. So does this mean
that brokerage research is of no
use? And what value should we
place on analysts forecasts?
Tied Agents?
Well, lets start by remembering
that sell-side analysts those
who work for the investment
houses are there to stimulate
trades and earn commissions
with their recommendations.
Analysts reports are very

IFAmagazine.com

Aviva Investment Doctor.indd 53

often circulated beyond their

intended audience, including
the media, and they can become
widely read. They certainly
sound authoritative theyre
usually highly detailed, and
theyre prepared by individuals
with a great understanding of
finance and their particular
sector. But, ultimately, how
should we judge them?
Probably the best approach
is to view all this Buy, Sell,
Hold, Outperform business with
a degree of friendly, healthy
cynicism, in the same way that
we treat many other arguments
put to us in the financial sector.
Yes, they are the products
of minds who should know
their onions; yes, they do
originate from firms who have
reputations to protect and
build; and yes, if the analysts
continually get their views
wrong, they wont last in the job.
But heres the crucial thing.
Analysts are part of the system.
Given the highly regulated City
environment, they are not privy
to special information, and nor do
they have unique relationships
which gain them the upper hand.
Yes, admittedly, they will have
the numbers of CEOs and CFOs
in their contact books and they
do enjoy greater access then
the private investor. But, they
should only be told things that
are widely known, or have access
to information that is readily
available in the public domain.

The directors have a

responsibility to ensure that the
consensus opinion out there is
based on fact and not excitable
conjecture. This is especially
true with the larger companies,
with analyst forecasts tending
to come within a tight range. In
the smaller company sector, of
course, coverage is thinner and
forecasts can be less accurate but even so, the market works
hard not to allow surprises
with any public company.
Furthermore, analysts
with a particular strong
sector/company knowledge,
or reputation, can provide
key pointers and snippets of
background information that it
would be hard to find elsewhere.
Analysts who have been around
the block a few times and with
hard-won reputations are the
ones that should be followed.
But it is essential that
these are not the only signposts
you need to read. They make
up a piece of the overall
jigsaw. An important piece,
yes, but not the only piece.
So, yes, if a piece of brokers
research lands on your desk,
give it a good read. But dont
as they say, bet the house
on it. Or anybody
elses for that
matter.

Fundamental Strengths
Where they are hugely beneficial
is that they provide the best
reference material into a
company, or a sector. They
will give you the basics the building blocks of
information on which a
judgement can be formed.
And their forecasts will
have been vetted by a
companys management.

53

19/03/2015 14:59

Compatibility: Requires IOS 6.0 or later. Compatible with iPhone, iPad, and iPod touch. This app is optimized for iPhone 5. Available on Android.
Compliance
Doctor.indd
IFA Magazine
App.indd 154

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

19/03/2015
21/11/2014 15:06
09:43

COMPLIANCE DOCTOR

March 2015

Thank You Sir...

That will do nicely, says Compliance Consultant Lee Werrell

wont need reminding, mean

that customers are able to:

PS 15/4
Retirement
Reforms and
the Guidance
Guarantee:
Retirement
Risk Warnings
www.fca.org.uk/
static/documents/
policy-statements/
ps15-04.pdf

Its obvious that consumers

must be given personalised
retirement risk warnings
when they would like
to access their pension
savings. But the FCA
does not intend to treat
these communications
as regulated advice, the
regulator has confirmed
in this Policy Statement.
PS 15/4 is another of those
FCA statements which turn out
to be more significant than a
seemingly banal headline might
seem to suggest. It follows on,
of course, from the 2014 Budget
announcement on proposals for
fundamental changes to the
options that consumers will
have for accessing their DC
pension savings at retirement.
And those options, as you

IFAmagazine.com

09:43

Compliance Doctor.indd 55

n Take their pension savings

as cash (in a one-time
payment or perhaps smaller
amounts over time);
n Buy an annuity (or
another income-generating
guaranteed product);
n Select a drawdown
pension without having
any limits applied;
n Use any combination
of these.
Why No Consultation?
The rules have been published
without consultation because of
the fact that a delay involved
in consultation could well be
detrimental to consumers
interests. The regulator is
planning for a consultation
on updating rules within the
pension and retirement area
in the summer of 2015, after
a thorough review. The FCA
will consult at this time on
whether or not to retain, modify
or enhance the rules outlined
in this Policy Statement.
So Whats Required?
Under the new rules,
Providers and platforms
must ask the customer set
questions to identify whether
risks exist, and present
appropriate retirement risk
warnings in response to the
answers to these questions.
You should read the whole
document to learn exactly
what is required; but I
highlight the actions below.
Firms will be required
to identify the main risk
factors related to the pension
decumulation products they

provide to consumers and

make preparations for accurate
questions that will assist them
in identifying and establishing
the existence of those risk
factors in relation to each one
of the pension decumulation
products offered. Risk factors
for the purchase of a single
life annuity would include
whether an individual has a
partner or dependents, with
the warning explaining that
they may not be provided for
on the individuals death.
The new rules will pertain to
providers holding the consumers
pension assets, including SIPP
operators and execution-only
firms, and providers contacted
by a consumer looking to
purchase a decumulation
product using a provider.
As with any uncrystallised
fund pension lump sum, risk
factors include tax implications,
sustainability of income in
retirement, charges, debt,
and impact on means-tested
benefits or the prevalence of
investment scams. Drawdown
risk factors include all of
these, plus a question asking
whether or not the consumer
has shopped around?
Risk Warnings
Retirement risk warnings are
expected to be provided in
whatever way the customer is
in contact with the company.
There are no exclusions or
caveats. Additionally the risk
warnings must be given even
where consumers happen to
have been through Pension
Wise guidance, although they
arent going to be necessary
where an individual has
received full advice.

55

19/03/2015 15:06

COMPLIANCE DOCTOR

March 2015

The regulator says that

the most recent rules will
not require firms to replicate
the Pension Wise service.
Instead, and in addition to
Pension Wise, the rules ensure
firms will ag specific risks
to customers, and give them
appropriate warnings about the
choices they have in accessing
their pension savings. These
warnings might include setting
out options the customer has,
for example, shopping around.
The FCA says that these
retirement risk warnings can
be given without providing
regulated advice; they are not
requiring firms to tell consumers
what to do or implying that
the consumers decision will
be wrong. They are simply
requiring firms to ensure
the consumer is aware of the
risks of the course of action
they are seeking to take. The
new rules are laid out in the
PS Appendix of the made
rules to become COBS 19.7.
The retirement risk
warnings must be given to the
consumer regardless of whether
they have already received
Pensions Guidance from
Pension Wise (see PS 14/17)
or taken regulated advice. See
Section 3.4 for further details.

4:

The Retirement Risks

Identification Process
The Process is simple although
there can be misunderstandings.
1.

Trigger Event:
Customer decides to
access their pension.

Risk Warnings

1.1 Question if they have

taken pensions guidance or
received regulated advice
1.2 If Yes - go to step 2.
1.3 If No or unsure - direct to
Pensions Guidance or take
regulated advice; if accepted
they go back to step 1.
1.4 If they decline advice
or guidance and want
to proceed - continue.
2.

Based on how the Customer

wishes to access their
pension pot, set questions
need to be answered
to identify which risk
factors are present.

3.

Firm to provide
appropriate risk warnings
in response to answers
to the set questions.

Expected risk warnings

will depend on the product
selected and will include those
in the table below, Firms may
add additional warnings if
their product requires it.

Other - Risk factors

relevant to how
the consumer has
decided to access their
pension savings.

Retirement risk warnings are

expected to be provided in
whatever way the customer is in
contact with the company. There
are no exclusions or caveats.
Additionally the risk warnings
must be given even where
consumers happen to have been
through Pension Wise guidance,
although they arent going to be
necessary where an individual
has received full advice.
Conclusion
The new rules lay out a
simple process to ensure that
customer detriment should be
minimalized, but obviously
will need application by
firms and advisors across the
retirement spectrum.
If you have any issues with this
Policy Statement, please refer
to your qualified Compliance
Professional or go to www.
complianceconsultant.org
See also the listings of the latest
FCA Publications on Page 58

How a consumer may access his or her pension savings

Risk Factor
Consumers state of health
Whether the consumer has a partner or dependants
The effect of inflation
Whether the consumer has shopped around
Loss of any guarantees
Sustainability of income in retirement
Charges (if the consumer intends to invest their pension savings)
Debt
Impact on means-tested benefits
Investment scams
Tax implications

56

Compliance Doctor.indd 56

Annuity

Lump Sum Drawdown

x
x
x
x
x

x
x
x
x
x
x
x

x
x
x
x
x
x

Other

?
?
?
?
?
?
?
?
?
?
?
IFAmagazine.com

19/03/2015 15:06

COMPLIANCE DOCTOR

March 2015

The Questions
The main considerations are covered in Section 3.34 of
the Policy Statement and are replicated here
n CONSUMERS STATE OF HEALTH:
Are there aspects of the
consumers health or lifestyle
that would make them
potentially eligible for a better
value annuity for example,
an enhanced annuity?
n WHETHER THE CONSUMER
HAS A PARTNER OR DEPENDANTS:
Does the consumer have a
partner or dependents who
might benefit from a joint life
annuity (where they are not
already purchasing one)?
n INFLATION:
If the consumer is seeking
to buy a level annuity,
do they understand that
inflation will erode the real
value of the income they
receive from their annuity?
n WHETHER THE CONSUMER
HAS SHOPPED AROUND:
Has the consumer shopped
around different providers before
choosing to buy the product?
n LOSS OF GUARANTEES:
Will the consumer lose
any guarantees attached
to the pension?
n SUSTAINABILITY OF
INCOME IN RETIREMENT:
Is the consumer expecting
the money they take from
IFAmagazine.com

Compliance Doctor.indd 57

the pension to help provide

an income in retirement?
n CHARGES
(if a consumer intends to invest
their pension savings):
Has the consumer considered
how the charges they may face
when investing their pension
savings elsewhere compare with
those on their pension savings?
n DEBT:
Is the consumer aware
that creditors may have a
call on any money taken
from pension savings?
n IMPACT ON
MEANS-TESTED BENEFITS:
Is the consumer aware that
taking money from their pension
may impact on any meanstested benefits they receive?
n INVESTMENT SCAMS:
Is the consumer aware that
investment scams exist, and
that they should be careful
where they invest money taken
from their pension savings?
n TAX IMPLICATIONS:
Does the consumer understand
the tax implications of
taking money from their
pension savings?
57

19/03/2015 15:06

March 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

Quarterly Consultation
Paper No. 8

Proposed Changes to
Pension Transfer Rules

Consultation Paper

Consultation Paper

Transaction Costs Disclosure:

Improving Transparency
in Workplace Pensions

Ref: CP 15/8

Ref: CP 15/7

Discussion Paper

6 March 2015

4 March 2015

Ref: DP 15/2

71 Pages

53 Pages

2 March 2015

The regulator is proposing minor

amendments to CASS and
CONC; to remuneration reporting
submission methods and to
various matters that impact
AIFMs and AIF depositaries.

The FCA is consulting on

proposed changes to its
rules that will make advising
on the conversion or transfer
of safeguarded pension
benefits into flexible benefits
a regulated activity.
The FCA already regulates
advice on transfers to personal
pensions, but the new regime
will bring advice on transfers
from defined benefit (DB)
schemes to occupational
defined contribution (DC)
occupational schemes
into the FCAs remit.
The new regime will also
make advising on pension
transfers significantly more
complex, so we now wish to
require the Pension Transfer
Specialist qualification
for advice on all transfers
from DB schemes to DC
arrangements, regardless of
when the transferred benefits
are being accessed.
In particular, the
regulator proposes to:

53 Pages

Consultation period ends

6 April 2015 (Chapter 2) and
5 May 2015 (chapters 3 and 4)
Structured Products:
Thematic Review of
Product Development
and Governance
Thematic Review
Ref: TR 15/2
4 March 2015
32 Pages
The regulators recent work
in the structured products
market has focused on better
understanding consumer
behaviour and the way that
firms approach product
development and governance.
In particular, research
has shown that retail
customers generally struggle
to understand the complex
features common to many
structured products and
frequently overestimate the
potential returns available
from them. This can have a
negative impact on the quality
of their decision-making.
Accordingly, the reports
published suggests that
firms senior management
must do more to put
customers at the forefront of
their approach to product
governance. A range of
specific proposals are set out.

58

FCA Publications and IFA Calendar.indd 58

n Amend the rules to

incorporate the new
specified activity of
advising on conversions
or transfers of
safeguarded benefits to
flexible benefits, and
n Require that all advice
on DB to DC pension
transfers be provided or
checked by a Pension
Transfer Specialist.
Consultation period ends 15
April 2015. Final rules to be
published in June 2015

A Call for Evidence on

improving the reporting and
disclosure of information
about transaction costs
in occupational and
workplace personal pension
schemes. It explores:
n How improved
transparency in
the reporting of
information about
the transaction costs
and charges incurred
by members of
workplace pension
schemes can
be achieved;
n What costs should be
included in transaction
costs reporting;
n The basis on which
costs should be
captured and
reported;
n Whether other
factors that influence
investment returns
should also be
provided;
n How Independence
Governance
Committees (IGCs)
and trustees will
receive transaction
cost information;
n When, how and
in what format
information should
be provided and
to whom?
Consultation period ends
4 May 2015

IFAmagazine.com

19/03/2015 15:07

March 2015

Final Rules for Charges

in Workplace Personal
Pension Schemes and
Feedback on CP14/24
Policy Statement
Ref: PS 15/5
2 March 2015
48 Pages
The FCA has published rules
to implement a charge cap
on default funds for automatic
enrolment and bans on
certain charging practices in
workplace personal pension
schemes that it regulates.
The changes arise from
the October 2014 consultation
on the proposed rules. These
required firms that operate
workplace personal pension
schemes used for automatic
enrolment to implement a
charge cap within the default
funds of those schemes. They
also prevent providers from using
differential charges based on
contribution status and from
paying commission and other
banned remuneration to advisers
for services not initiated by
scheme members in workplace
personal pension schemes.
These rules form part of a
package of measures aimed
at improving governance
and value for money in
workplace pension schemes.
The charge cap will apply
from 6 April 2015, or the
date from which a scheme
becomes a Qualifying
Scheme for an employer.

payments, including all

other mechanisms for
members paying for
services they have not
initiated, from Qualifying
Schemes by 6 April 2016.
Retirement Reforms and
the Guidance Guarantee
Policy Statement

Dates
Diary
for your

APRIL 2015
1

FCA due to start

regulating additional
benchmarks (CP 14/32)

UK Tax year
2015/2016 begins

New rules for Independent

Governance Committees
(PS 15/3) come into force

UK Pensions
deregulation begins

9-12

The Masters
Augusta National
Golf Club, Georgia

15

Consultation period
ends for CP 15/7
(Proposed Changes to
Pension Transfer Rules)

Ref: PS 15/4
27 February 2015
27 Pages

n Ensure compliance with

the charge cap from
6th April 2015 onwards;

During 2014 the FCA produced

near-final rules requiring
firms to tell their customers
about Pension Wise, and to
include a recommendation,
in customer communications
about retirement options, that
consumers consult Pension
Wise or take regulated advice.
The FCA has since reflected
on the protections offered in
the rules, and considered wider
feedback on the impact of
the new pension flexibilities.
It now considers that the risk
to consumers in this area is
great enough for additional
protections to be required
before the April 2015 changes.
The new rules described
in this Policy Statement will
come into force on 6th April
2015. Firms operating personal
pensions, stakeholder pensions,
selling pension decumulation
products or facilitating the
access of pension savings on
an execution-only basis must
make any changes necessary
to comply with the rules
before they come into force.
The FCA plans to consult
in summer 2015 on potential
changes to these rules.

n Remove consultancy
charging from
Qualifying Schemes
by 6th April 2015;

Consumer Credit Proposed Changes to

Rules and Guidance

25-27 Parliamentary elections

in Egypt (second round)

n Amend any differential

charges on the basis
of contribution status
in Qualifying Schemes
by 6th April 2016;

Consultation Paper

MAY 2015

Ref: CP 15/6

n Remove commission
and the remaining
banned remuneration

The FCA has been responsible

for regulating the consumer
credit market since April 2014,

Firms affected by these

changes will need to:

24 March 2015
123 pages

Consultation period
ends for DP 15/2
(Transaction Costs
Disclosure: Improving
Transparency in
Workplace Pensions)

Continues overleaf
IFAmagazine.com

FCA Publications and IFA Calendar.indd 59

59

19/03/2015 15:07

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

March 2015

Dates
Diary
for your

Consultation period ends

for CP 15/8 (Quarterly
Consultation Paper No. 8)

Consultation period
ends for CP 15/6
(Consumer Credit Proposed Changes to
Rules and Guidance)

6-7

European Business
Summit
Brussels, Belgium

UK General Election

17-19 Global Tax Summit 2015

Monte Carlo, Monaco
(to be confirmed)
22

Consultation period
ends for CP 15/4
(Whistleblowing in
Deposit-Takers, PRADesignated Investment
Firms and Insurers)

JUNE 2015

UEFA Champions
League Final
Berlin, Germany

Parliamentary
elections in Mexico

7-8

G7 Summit
Schloss Elmau, Germany
(Russias participation in
G8 currently suspended)

HAVE WE FORGOTTEN ANYTHING?

Email editor@ifamagazine.com

60

FCA Publications and IFA Calendar.indd 60

and it is now consulting on

changes intended to address
potential areas of harm to
consumers that have been
observed in the market.
The broad scope of this
Consultation Paper relate to:
n Credit broking:
To consult on whether
to retain the rules
made in PS14/18,
and to seek views
and evidence
more generally
on appropriate
remuneration
structures for brokers;
n Guarantor lending:
To require firms to
provide adequate
explanations to
guarantors, assess
their creditworthiness
and treat them with
forbearance;
n High-cost
short-term credit:
To remove the
exemption from the
requirement for firms to
include a risk warning
in financial promotions;
n Financial promotions:
To amend the rules
regarding the relative
prominence and
representative APRs;
n Arrears, default
and collection:
To allow firms to
introduce continuous
payment authority to
collect repayments
where a customer is in
arrears or default and
the lender is exercising
forbearance;
n Mortgages:
Consequential
changes to the rules
in relation to the
implementation of
the Mortgage Credit
Directive and the
transfer of second
charge mortgage
regulation.
Consultation period ends
6 May 2015

Non-Executive Directors in
Banking and Solvency II Firms
Consultation Paper
Ref: CP 15/5
23 February 2015
113 pages
This paper sets out the regulators
revised approach to independent
non-executive directors in banks,
building societies, credit unions
and PRA-designated investment
firms and Solvency II firms.
Consultation period ends
27 April 2015
Whistleblowing in Deposit-Takers,
PRA-Designated Investment
Firms and Insurers
Consultation Paper
Ref: CP 15/4
23 February 2015
71 Pages
The regulator proposes, with the
PRA, a package of measures to
formalise firms whistleblowing
procedures. This consultation
paper proposes a set of rules
that will apply to banks, building
societies, credit unions, PRAdesignated investment firms and
insurance and reinsurance firms,
within the scope of Solvency II,
and to the Society of Lloyds and
managing agents. It does not,
however, propose to impose
its requirements on small credit
unions with under 25m in assets.
Consultation period ends
22 May 2015
UK Listing Authority Fees:
Covering the Cost of Regulation
Discussion Paper
Ref: DP 15/1
15 January 2015
25 pages
This paper sets out some options
for discussion on how the FCA
should recover the costs it incurs
when carrying out its duties.
The regulator says it expects to
consult on proposals in October
2015, for implementation
from 1 April 2016.
Consultation period ends
20 April 2015

IFAmagazine.com

19/03/2015 15:07

UKs Number 1 IFA database

Register for FREE unlimited access - Join this rapidly growing community today!
Visit www.MyTouchstone.co.uk to register or call 01236 794 120
I wish to express my appreciation to MyTouchstone for data on hourly fee rates for IFAs in my area of SE England.
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rate from 125 to the average for my area of 160, said Mike Grant of Montgo Consulting Ltd, East Sussex.

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4) RDR Survey: Understand how many firms are RDR ready and the biggest hurdles still to
over come.
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outsourced fund management, wraps and platforms.
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FCA Publications and IFA Calendar.indd 61

19/03/2015 15:07

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

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:

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

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

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

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

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

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

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

March 2015

Natural Limits
Thomas Malthus
Born 1766
in Guildford, Surrey
Died 1834 in Bath,
Somerset
idea of introducing preventive
checks to population growth
including forced limits on
birthrates and a higher statutory
age for marriage. Only thus, he
argued, could a higher standard
of living be achieved for all, while
also increasing economic stability.

Terminally Misunderstood
It seems slightly quaint to
find the Reverend Thomas
Robert Malthus listed so
frequently among the most
eminent economic thinkers
of all time. Didnt he become
famous for claiming that the
human species would rapidly
outgrow its ability to provide
enough food for itself
resulting in a so-called
Malthusian Catastrophe that
would periodically knock it
back down to size through
starvation and disease?
Couldnt he have foreseen
that selective breeding and
other farming technologies
would eventually produce
the ability to rescue the
human race, and largely
to eliminate starvation?
Yes, he did say all those
things. And, living as he
did in the age of the steam
engine and the cotton mills,
you might have expected a
more forward-looking view.
Hadnt Adam Smiths study
of Europes industrialising
economy, The Wealth of
Nations, been published
when he was only ten?
Indeed it had. But Malthus
the clergyman was at odds
with Malthus the economist.
The former had set his face
against the fashionable theory
that society was improving
as the world became more
wealthy he said that the
power of population, which
was indefinitely greater
than the power in the earth
to produce subsistence for
man, was in fact a God-given
test designed to teach man
about virtuous behaviour.

IFAmagazine.com

Thinkers.indd 65

Devils Advocate?

The power of
population is
indefinitely greater
than the power in
the earth to produce
subsistence for man

To Hell In A Handcart
Virtuous behaviour had its costs,
though. Malthus opposed the Poor
Laws, and he stood up (almost
uniquely) for the Corn Laws,
which penalised British imports
of wheat and which drove up
the price of basic foodstuffs to
the point where they eventually
caused riots in many places. His
insistence on moral sobriety and
propriety, even at the costs of
short-term comfort, formed the
fundamental underpinnings of
his signature work, An Essay
on the Principle of Population,
which he updated no less than six
times between 1798 and 1826.
The impoverished social
classes didnt fare well in other
ways either. Having established
that low and immoral practices
were the main reason why the
poor multiplied so prodigiously
during the good times, Malthus
tinkered with the now-poisonous

ather than scoffing, we might

do better to re ect that Malthuss
views were taken very seriously
indeed by even his bitterest
adversaries. Contemporaries
like David Ricardo, John Stuart
Mill and later Charles Darwin
treated his theories with respect
- this was, after all, a period of
enormous leaps in social and
economic understanding, and of
political turmoil in Europe. The
Origin of Species and the seminal
plant-genetics research of Gregor
Mendel wouldnt happen until some
25 years after Malthuss death.
Malthuss long public
exchanges with David Ricardo
on the political economy were
probably the most important of
these. Ricardo was himself an
opponent of easy money he
had successfully campaigned
against letting the Bank of
England print extra banknotes,
which he was sure would destroy
the currency and leave the
working man no better off. But
in the end they agreed to differ,
with Ricardo focusing until his
untimely death on the economic
dimensions, while Malthus stuck
to his insistence that the broader
moral and political plane should
form a central plank of thinking
on the political economy.
The smart money decided
that Malthus had lost the
debate. And in an important
sense, he had.

65

19/03/2015 15:08

T H E OT H E R S I D E

March 2015

Rigging the Odds

Mesdames, Messieurs, Faites Vos Jeux, says Richard Harvey.
Are you feeling lucky?
Traditionally, governments
have been ambivalent about
gambling. On the one hand
they see it as a useful source
of revenue, but on the other
they saddle the industry
with rigid restrictions
because they dont want us
to end up as down-and-outs
after weve blown all our
poppy in the betting shop.
Bizarre, then, that this
government doesnt mind
behaving as the nations
croupier when it comes
to the State pension.
To wit: we oldsters now
being invited to top-up our
State pensions by handing
over lump sums, in return
for which we will receive an
enhanced monthly payout.
Dodgy Maths
The official bumf quotes an
example of a pensioner
reaching 68 in October.
He or she wants an extra
fiver a week - thats 260
a year. The Exchequer
says it will happily pay
out the additional 5, in
exchange for an upfront
lump sum of 4,135.
Er, hold on a minute. I was
always a duffer at maths, but
unless Im entirely wrong, it will
surely mean that the pensioner
has to survive until he or she is
almost 84 until they begin to see
a return of an additional 5 a
week they havent already
paid for themselves?
According
to the life
expectancy
figures
quoted on
the Office
for National
Statistics
website,

66

The Other Side.indd 66

we male pensioners will be

lucky to make it to 83, while
the ladies could hang on for
another couple of years or so.
(A strange anomaly in the
equality agenda which the
chatterati rarely talk about).
So you dont have to be
Stephen Hawking to realise
that youd probably be better
off splurging your top-up
money on Knackered Knees
in the 4.30 at Kempton.
Particularly if you live
somewhere like Glasgow, where
a life spent munching deepfried Mars Bars and downing
pints of heavy means youll be
lucky to make it out of your 70s.
(Note to Scottish readers: ahem,
only joking).

The House Always Wins

Theres probably a calculation to
be made of just how much profit
the government will make from
their top-up offer. Because, just
like every casino in the world,
there will be considerably more
money coming in than going out.
Just which shady, Caponeesque character in the Treasury
dreamed up this little deal?
No wonder social media has
erupted with scornful Tweets
and Facebook postings from
those who have rumbled the
sort of racket which, had it
been perpetrated by IFAs,
would have been condemned
by politicians as exploitative.
Fish Out the Rose
Tinted Spectacles
Meanwhile, on another subject:
With the Stock Market frothing
over like a glass of the
aforementioned Scottish
heavy, and brighter
economic times ahead
(what? you mean youre
cynical about all these
pre-election claims?)
investors are now eyeing
improved returns.
My IFA mate Nigel
reckons that an
annual return north
of seven percent is a
perfectly reasonable
expectation. So, for the
embattled saver, it would
appear that happy days
really are here again.
Providing, of course, that
Putin keeps his tanks at home.
And the Eurozone doesnt go
belly up. And the incoming
government doesnt start caning
the wealth creators. Glass
half empty? Who - me?

IFAmagazine.com

19/03/2015 15:09

For authorised financial advisers only

not for retail clients

WHEN BRIAN RETIRED

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Cover.indd 3
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19/03/2015 14:35
14/10/2014 16:05

Cover.indd 4

19/03/2015 14:35