ifa magazine june 2012

N E W S R E V I E W C O M M E N T A N A LY S I S

For today’s discerning financial and investment professional

TAXIFOR

OBAMA?THE BUCK ALWAYS

STOPS WITH THE PRESIDENT

JUN

E 2

012

■ IS

SU

E 1

2

STRATEGIC METALSRARE, PRECIOUS AND PROFITABLE

EUROPEBUY COMPANIES, NOT COUNTRIES

STAY SHARPSMARTERTHAN AVERAGE BEAR MARKET STRATEGIES

Cover 12.indd 1 30/05/2012 00:32

This communication is for financial advisers only. Investec Structured Products is a trading name of Investec Bank plc, registered address 2 Gresham Street, LondonEC2V 7QP. Investec Bank plc is authorised and regulated by the Financial Services Authority.

FTSE 100 Geared Returns Plan 34

Investec option

• 82.5% return if the FTSE 100 is higher after 5 years

UK 5 option

• 65% return if the FTSE 100 is higher after 5 years

FTSE 100 Enhanced Kick-Out Plan 29

Investec option

• Potential for early maturity at the end of years 1, 2, 3 or 4 witha fixed payment equal to 13% per annum (not compounded)

UK 5 option

• Potential for early maturity at the end of years 1, 2, 3 or 4 with a payment equal to 10.5% per annum (not compounded)

If the Plan runs for the full 5 years 120% of any FTSE 100growth with no upper limit.

We’re on a roll with our UK equity-linked plans

Great rates right

Best Structured Products Provider 2010 & 2011

C30846.019_SP_UK equities_IFAmag_Jun12_297x420_v2_Layout 1 28/05/2012 17:44 Page 1

This communication is for financial advisers only. Investec Structured Products is a trading name of Investec Bank plc, registered address 2 Gresham Street, LondonEC2V 7QP. Investec Bank plc is authorised and regulated by the Financial Services Authority.

FTSE 100 Geared Returns Plan 34

Investec option

• 82.5% return if the FTSE 100 is higher after 5 years

UK 5 option

• 65% return if the FTSE 100 is higher after 5 years

FTSE 100 Enhanced Kick-Out Plan 29

Investec option

• Potential for early maturity at the end of years 1, 2, 3 or 4 witha fixed payment equal to 13% per annum (not compounded)

UK 5 option

• Potential for early maturity at the end of years 1, 2, 3 or 4 with a payment equal to 10.5% per annum (not compounded)

If the Plan runs for the full 5 years 120% of any FTSE 100growth with no upper limit.

We’re on a roll with our UK equity-linked plans

Great rates right

Best Structured Products Provider 2010 & 2011


Cover 12.indd 2 30/05/2012 00:32

www.investecstructuredproducts.com020 7597 4065 for technical enquiries

08000 890 305 to ord er client literature

Follow us on Twitter @Investec_SP_UK

FTSE 100 Bonus Income Plan 24

Investec option

• Annual version: 5 annual fixed payments equal to 7.25%, with potential annual bonus payments of 0.50%

• Monthly version: 60 monthly fixed payments equal to 0.60%, with potential monthly bonus payments of 0.04%

UK 5 option

• Annual version: 5 annual fixed payments equal to 6%, with potential annual bonus payments of 0.50%


FTSE 100 Kick-Out Deposit Plan 29• Potential for maturity at the end of years 2, 3, 4 or 5 with a

payment equal to 5.75% per annum (not compounded) if theFTSE 100 is above the starting level

Initial deposit is fully returned at maturity.

across the board

All plans available for direct investment, Cash or Stocks & Shares ISA,SIPP/SSAS, corporates and trustees until 6 July 2012. Returns are stated gross.

Unless stated otherwise, plans place clients’ capital at risk.


www.investecstructuredproducts.com020 7597 4065 for technical enquiries

08000 890 305 to ord er client literature

Follow us on Twitter @Investec_SP_UK

FTSE 100 Bonus Income Plan 24

Investec option

• Annual version: 5 annual fixed payments equal to 7.25%, with potential annual bonus payments of 0.50%


UK 5 option

• Annual version: 5 annual fixed payments equal to 6%, with potential annual bonus payments of 0.50%


FTSE 100 Kick-Out Deposit Plan 29• Potential for maturity at the end of years 2, 3, 4 or 5 with a

payment equal to 5.75% per annum (not compounded) if theFTSE 100 is above the starting level

Initial deposit is fully returned at maturity.

across the board

All plans available for direct investment, Cash or Stocks & Shares ISA,SIPP/SSAS, corporates and trustees until 6 July 2012. Returns are stated gross.

Unless stated otherwise, plans place clients’ capital at risk.


Contents.indd 3 29/05/2012 22:37

features

regula

rs65

17

46

NewsAll the big stories that affect

what we say, do and think

Whither Europe?Brian Tora isn’t sure either, but he knows

the answer matters enormously

The Compliance DoctorLee Werrell of CEI Compliance looks at

the top current issues of interest to IFAs

The IFA CalendarConferences, economic summits, race

meetings... All the dates you daren’t miss

Editor’s SoapboxIs Hollande’s warm reception enough to send David Cameron back to Mrs Merkel?

A Double Hat TrickIt’s a great year for soccer, and for pensions too. Steve Bee kicks a few ideas about

59Thinkers: Nikolai KondratievThe biggest capitalist thinker ever to come out of Soviet Russia

49

56

IFA Magazine is published by The Wow Factory Publications Ltd., 45 High Street, Charing, Kent TN27 0HU. Tel: +44 (0) 1233 713852. ©2012. All rights reserved. ‘IFA Magazine’ is a trademark of The Wow Factory Publications Ltd. No part of this publication may be reproduced or stored in any printed or electronic retrieval system without prior permission. All material has been carefully checked for accuracy, but no responsibility can be accepted for inaccuracies. Wherever appropriate, independent research and where necessary legal advice should be sought before acting on any information contained in this publication.

54FSA PublicationsOur monthly listing of FSA publications, consultations, deadlines and updates

Pick of the FundsNick Sudbury’s selection of

strategies for a bear market

CO

NTR

IBU

TOR

S

This month’s contributors

Nick Sudbury is a fi nancial journalist and investor who has also worked as a fund manager.

Kam Patela former deputy editor at Hemscott. He is a qualifi ed investment adviser.

Monica Woodleyis a senior editor at the Economist Intelligence Unit.

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

Brian Toraa Communications Associate with investment managers JM Finn & Co.

Richard Harvey a distinguished independent PR and media consultant.

Gillian Cardy managing director of The IFA Centre.

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

Editor: Michael [email protected]

Art Director: Tony [email protected]

Publishing Director: Alex [email protected]

Luxury Account Director: Nick [email protected]

THE FRONTLINE: Any which way, driver, but make it quick. There’s a budget defi cit on my tail06

.12

32

8

66The Other SideJust put down that shotgun, grandma, says Richard Harvey

N E W S R E V I E W C O M M E N TC O M M E N T A N A LY S I S

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

N E W SContents.indd 4 29/05/2012 22:37

features

The Buck Stops in WashingtonAmerica may be deluding itself on growth, says Monica Woodley. But it’s Barack Obama who’s got to take the blame

Oeics and UcitsAn endangered species after RDR?

Kam Patel doesn’t think so

Buy Companies, not Governments Blackrock’s Andreas Zoellinger says there’s a solid income story in continental Europe

Suits YouHow one fi nancial planner is using outsourced investment

management to great effect

Strategic MetalsAn alternative investment with a

difference. Helen Clague of Schweizerische Metallhandelsgesellschaft explains

Yields – The OutlookJohn Greenwood of Creechurch Capital says this is an ideal moment to commit

22 COVER STORY

28

34 GUEST INSIGHT

America’s healthy

growth looks increasingly like

an exercise in self-deception. But Obama will still have to pick

up the tab in November

IFA Magazine is for professional advisers only.

Full subscription details and eligibility criteria are available

at: www.ifamagazine.com

INSIDE TRACK 38

46

41

CO

NTE

NTS

A N A LY S I SN E W S R E V I E W C O M M E N T A N A LY S I SContents.indd 5 29/05/2012 22:38

An Octopus IHT solution that makesthe whole family happy

Business Proper ty Relief (BPR) was or iginally introduced to allow familiesto pass businesses down generations without incurr ing a tax l iability. Butwhat if the nex t-in-line doesnÕ t want to run their family Õ s BPR-qualifyingcar dealership, shipyard, or manufactur ing empire? Our BPR inher itancetax solutions, investing in either AIM or unquoted businesses targeting capital preservation, allowthe family Õ s wealth to stay outside the estate so the kids are free to f ind happiness elsewhere.

making humans happyoctopusinvestments.com0800 316 2298

For professional advisers only. Not to be relied upon by retail clients. Past performance is no guide to future performance. The value of an investment in an Octopusproduct may go down as well as up and an investor may not get back the full amount invested. An investment may only be made on the basis of the information containedin the relevant product brochure. Octopus Investments Limited is authorised and regulated in the UK by the Financial Services Authority. FSA Registered Number: 194779.Registered office: 20 Old Bailey, London EC4M 7AN. Registered in England & Wales under No. 3942880. All information correct as at 18 May 2012. Telephone calls may bemonitored and/or recorded for legal and training purposes.

An Octopus IHT solution that makes

Business Proper ty Relief (BPR) was or iginally introduced to allow familiesto pass businesses down generations without incurr ing a tax l iability. Butwhat if the nex t-in-line doesnÕ t want to run their family Õ s BPR-qualifying

tax solutions, investing in either AIM or unquoted businesses targeting capital preservation, allow

01.06.2012_IFA_297x210mm.indd 1 18/05/2012 10:15

Ed's Welcome.indd 6 29/05/2012 22:41

...and other times when everything simply succumbs to the brute force of unstoppable natural forces. Unfortunately, this year seems to be one of the brutal ones.

It’s hardly surprising that nobody is making much money at the moment, because so many asset classes are moving in lockstep with each other and the opportunities for profi table allocation are slim. Rather, it’s the massive grinding of the colliding continental plates under our feet that’s calling the tune - not the mere mortals whose colourful actions normally give things such a profi table spin.

Consider this. We’ve had no shortage of personnel changes at the political top table. The new French president, François Hollande, is urging us to emulate the Americans by ripping up the austerity book and splurging our way to growth. US politics is as lively as it’s been in the last fi ve years. There are new leaders in Italy and Spain. But ironically, the only person whose actions really seem to matter is the German chancellor Angela Merkel - who has chained herself stubbornly to the austerity rock and won’t dispense the European rescue cash for fear of reawakening Germany’s own folk-memory of hyperinfl ation.

All the while, the subterranean collision forces continue. The euro is distorting and buckling under the built-in tensions that have been there ever since it was so badly mis-designed in the 1990s. The USA is moving with all the frozen certainty of a descending glacier toward the November elections. Japan’s prime minister is screaming uselessly that he’s being crushed by uncontrollable government debt. And China’s powerful elbows keep on getting steadily wider – as the energy markets are starting to discover.

The visible symptoms of these tectonic stresses so far have been small but telling. A bank totters and goes down in Spain or France. A small seismic tremor brings down a Dutch government, and a couple more in Greece. Gilt yields turn minimal under the pressure from Greek outfl ows, and Germany’s bonds actually go negative. A minor volcanic eruption threatens in Italy as the budget goes sour.

And still the market senses that we’re waiting for the The Big One.

This isn’t over yet.

THE AGE OF TECTONICS

WO

RD

S O

F W

ILSO

N

Write to Michael [email protected]

THERE ARE TIMES WHEN THE MARKETS BELONG TO THE ACTIONS OF MEN...

Michael Wilson, EditorIFA magazine

Mike

www.IFAmagazine.com June 2012 7

Ed's Welcome.indd 7 29/05/2012 22:41

sho

rtsIf only the Bank of England could be persuaded to drop the rate just a little bit more, it said, we might be in with a chance of getting our economic growth back on the upward path.

More to the point, the IMF’s Managing Director, Christine Lagarde, declared on 22nd May that Britain should consider another round of quantitative easing in an attempt to revitalise growth and lower the cost of borrowing for UK businesses. Well, maybe that’s not such a bad idea for struggling fi rms hoping to get some investment going. But it would be less good news for gilt holders, because it would probably have the effect of driving up yields.

This is itself wouldn’t be such a bad thing, insofar as sterling-denominated bonds are being

infl ated out of all recognition by the continuing crisis in the euro zone. But it would hurt the value of sterling itself, which is only just struggling upward again after three years of horrifyingly undervalued status against the braggart euro. And it’s a good job nobody has asked Chancellor George Osborne what he thinks of that idea.

Nor will Ms Lagarde’s message necessarily go down well with Bank of England Governor Mervyn King, who has spent most of the last month blaming the slowdown in the euro zone for Britain’s economic woes. The Governor had said...

“Unfortunately the economic recovery in the UK has not yet taken hold and uncertainties abound,” Ms Lagarde insisted. “The stresses in the euro area affect the UK through many channels. Growth is too slow, and unemployment - including youth unemployment - is too high. Policies are needed to bolster demand before low growth becomes entrenched.”

Still, there was one thing on Ms Lagarde’s side. The IMF’s report came on the very same day as the latest UK infl ation fi gures, which showed a sharp drop in the annual rate to just 3% in April - the lowest rate since February 2010. Now admittedly, IFA Magazine readers will know that the reason infl ation is falling is that the step-change resulting from the January 2011 introduction of 20% VAT is still being fl ushed out of the pipework.

Platform provider Cofunds recorded a £7.1 million pre-tax profi t for 2011, with its assets under administration rising by 17% to £36bn from the £30.3bn in 2010. Revenues grew by 14% to £70 million. The result was 10% less than the £7.9m profi t posted for 2010, but this was largely because 2010 had included a £12.3m tax credit.

For more comment and related articles visit...

www.IFAmagazine.com

More, Bigger, Faster, Cheaper... Now!Just when you thought the bank rate couldn’t

get any lower than 0.5%, the International Monetary Fund has produced an answer.

PLAN BGeorge Osborne must adopt

an economic “Plan B” and slow the pace of public spending

cuts if the British economy remains weak, the International

Monetary Fund warned the Chancellor in May. The

managing director of the IMF, Christine Lagarde, went to the

Treasury to deliver the sobering news: that the Government

should consider slowing spending cuts if recovery stalls.

N E W S R E V I E W C O M M E N T A N A LY S I SN E W S

magazine

News.indd 8 29/05/2012 22:42

NE

WSThe euro zone is the biggest

single threat to the global economy, the OECD reported. The 17 nations which use the euro will see their economies shrink by an average 0.1% this year, before returning to 0.9% growth in 2013. By contrast, the US economy will expand by 2.4% this year and 2.6% in 2013. And even the UK will grow by 0.5% this year and by 1.9% in 2013. Heady stuff.

Aviva reported that its UK life and pension sales had been £2.4 billion in the fi rst quarter of 2012, marking a 12% rise in pension sales and a 20% growth in protection sales. General insurance sales were generally fl at year-on-year at £2.2 billion; but life and pension sales in Italy and Spain had fallen by 23%, and French sales by 14%.

And the proportion of these front-line enquiries and complaints that went on to develop into formal disputes grew by 28% to reach a record 264,375 new cases.

But against that, we do need to remember that the proportion accounted for by payment protection insurance (PPI) rose drastically, prompted by a surge in activity from professional claims management companies, which accounted for 69% of all PPI claims.

The good news for IFAs is that the number of complaints referred to the FOS actually fell from 3,260 to just 3,092 last year, representing only 1.5% of all FOS complaints in 2011/12 and the number of investment complaints also fell by 13%, from 3,784 in 2011 to 3,308 in 2012 – apparently because fewer people were complaining in a gently more optimistic market environment.

Stockbroking and portfolio management complaints also fell by 19% to just 1,842, although the FOS says it is having to deal with more complaints about unregulated collective investment schemes.

Against that, the number of mortgage

complaints grew by around 35% during the year, with administrative errors representing the largest focus for complaints.

Things get more interesting when you drill down into the statistics. The FOS says that the numbers of people using the ombudsman from “C1/C2” (skilled/semi-skilled) and “DE” (unskilled) backgrounds have risen by 50% and 140% respectively over the last fi ve years, while complaints from “AB” professionals have fallen by 42%.

21% of complainants said they had some form of disability, and PPI complaints made up an enormous 62% of cases from the North East of England compared with only 48% from the South East.

Let’s leave it on an upbeat note. 75% of the UK population say they’re aware of the Financial Ombudsman Service, and fully 70% say they’d trust the ombudsman. Not bad.

Over 1.2 million people launched complaints about fi nancial services in the 2011/12 fi nancial year, according to new data from the Financial Ombudsman Service, the independent organisation that settles disputes between consumers and fi nancial companies.

Good and Bad News


www.IFAmagazine.com

A N A LY S I SN E W S R E V I E W C O M M E N T A N A LY S I SNews.indd 9 29/05/2012 22:42

NE

WS

Pensions? Save Them For Later

The provider’s 2012 survey of 5,200 UK adults found that only 46% of UK residents are saving enough for their retirement in any form, and that 22% are not saving anything at all. This compares with the 54% who were considered to be saving enough in 2009.

Well, you could probably have guessed all this much from the current uncertain mood in the public arena about the pensions industry in general. A welter of changing legislation, a series of penalties and restrictions on more adventurous drawdown options and a plummeting of annuity values have combined with a period of general belt-tightening to militate against saving in any shape or form.

But even so, Scottish Widows’s discovery that people are expecting more from their retirement is especially unsettling. The company said that, despite the decline in pension savings,

expectations of a fi nal pension income level had increased by £200 in the past year.

The survey’s fi ndings show that the average level of annual income people would feel comfortable living on at 70 years old is now £24,500 compared to £24,300 in 2011. This would necessitate a £450,000 pension pot, the company says. But in practice the average saver

has a pot of just £150,000, which would give him or her a projected pension

of £13,000 including the state pension entitlement.

So what comes above pension saving in the average consumer’s breast? Well, the Scottish Widows survey found that 73% thought that other fi nancial commitments were more important. 30% said that their main priority was paying off debts, 40% said that general living expenses made it impossible, and 16% said they would pay for holidays and travelling before getting round to saving.


www.IFAmagazine.com

In the month when it was revealed that more people are saving through ISAs than pensions, there was more gloomy news to come from Scottish Widows.

Healthcare is one of the prime candidates for an M&A boom this year, according to a report from Swiss & Global Asset Management. Global M&A activity in the sector amounted to $211bn in 2011 - the third-highest year since 2000, and twice the annual average - and the current number and size of deals already announced this year suggests a new record for 2012. Large cash balances, valuations at historical lows and favourable fi nancing conditions are all positive signs.

Hedge funds fared poorly in April, according to a report from EDHEC-Risk Alternative Indexes, which said that every sector except short-selling and fi xed income arbitrage had seen a reverse in its fortunes – caused, it said, by a global stock market setback. But it wasn’t all bad news. Long-short equity funds had achieved 5.5% growth in the year to date, and emerging markets 5.6%.

* For investments made from 1st February 2012 to 31st May 2012. Aviva Investors reserve the right to amend or withdraw this offer for new business at any time without notice. The value of an investment and any incomefrom it may go down as well as up. Investors may not get back the original amount invested. When funds invest in overseas assets, the value will go up and down in line with movements in exchange rates. Aviva Investorsis the business name of Aviva Investors UK Fund Services Limited. Registered in England No. 1973412. Authorised and regulated in the UK by the Financial Services Authority. FSA Registered No. 119310. Registered address:No 1 Poultry, London EC2R 8EJ. An Aviva company. www.avivainvestors.co.uk MC2352-V001-226126 CI062064 04/2012

FIVE RISK-TARGETED MULTI-ASSET FUNDS

PRECISION TARGETED TO REFLECT YOUR CLIENTS’ ATTITUDE TO RISKOur Multi-asset Funds focus on optimal returns for defined levels of risk, with five funds covering a comprehensive spectrum from defensive to adventurous. As market conditions change, they’re dynamically managed to keep volatility within precise parameters. So if you recommend one of our Multi-asset Funds based on a client’s attitude to risk, you can be confident it will be managed to the same risk profile over the term of the investment.

To achieve this, we take a global, unconstrained approach to asset selection. We invest in a broad range of asset classes including equities, bonds, convertibles, commodities and property, and use both active and passive funds.

The result is a range of risk-managed portfolios that are cost efficient too. For further illumination, just get in touch.

CALL 0800 015 4773

EMAIL fund&[email protected]

VISIT www.avivainvestors.co.uk/maf

For investment professionals only, not for personal investors.

2%discount on initial charge*

N E W S R E V I E W C O M M E N T A N A LY S I SNews.indd 10 29/05/2012 22:42

* For investments made from 1st February 2012 to 31st May 2012. Aviva Investors reserve the right to amend or withdraw this offer for new business at any time without notice. The value of an investment and any incomefrom it may go down as well as up. Investors may not get back the original amount invested. When funds invest in overseas assets, the value will go up and down in line with movements in exchange rates. Aviva Investorsis the business name of Aviva Investors UK Fund Services Limited. Registered in England No. 1973412. Authorised and regulated in the UK by the Financial Services Authority. FSA Registered No. 119310. Registered address:No 1 Poultry, London EC2R 8EJ. An Aviva company. www.avivainvestors.co.uk MC2352-V001-226126 CI062064 04/2012

FIVE RISK-TARGETED MULTI-ASSET FUNDS

PRECISION TARGETED TO REFLECT YOUR CLIENTS’ ATTITUDE TO RISKOur Multi-asset Funds focus on optimal returns for defined levels of risk, with five funds covering a comprehensive spectrum from defensive to adventurous. As market conditions change, they’re dynamically managed to keep volatility within precise parameters. So if you recommend one of our Multi-asset Funds based on a client’s attitude to risk, you can be confident it will be managed to the same risk profile over the term of the investment.

To achieve this, we take a global, unconstrained approach to asset selection. We invest in a broad range of asset classes including equities, bonds, convertibles, commodities and property, and use both active and passive funds.

The result is a range of risk-managed portfolios that are cost efficient too. For further illumination, just get in touch.

CALL 0800 015 4773

EMAIL fund&[email protected]

VISIT www.avivainvestors.co.uk/maf

For investment professionals only, not for personal investors.

2%discount on initial charge*


NE

WS 47% of IFAs are planning

to obtain qualifi cations over and above the minimum level required by RDR by 2013, according to Defaqto.That would be an increase of 11% who currently hold qualifi cations above Level 4. Defaqto’s survey of 161 advisers says that 89% intend to have attained Level 4 by new year.

Pay rises are a foreign language to 65% of Britons who have never even asked for one, according to a new survey by the payday term lender Wonga.com. This is especially weird since 80% of pay rise requests are successful. And, the study says, 17% of those employees courageous enough to ask walked away with more than they expected. Cheaper than a payday loan.

Chartered Insurance Institute: Operating on a Higher Plane

The CII’s annual review for 2011, published rather late in May, shows that the total membership rose from 372 chartered fi rms to 468, as members tooled up to meet the increased regulatory demands after RDR.

Total individual membership rose from 96,617 to 102,221 during the year, and the numbers of chartered individuals increased from 20,175 in 2010 to 20,690. Members are now found in 150 countries, with 12% of the membership based outside the UK. And there are 94 chartered insurance brokers and 12 chartered insurers.

But the growth emphasis here is fi rmly on the fi rms. “Those companies that are approaching RDR-readiness in terms of qualifi cation progress have switched their attention to the broader aspects of professional standards,” said CEO

Dr. Alexander Scott as the report was published. “This is focused on membership of the CII or Personal Finance Society (PFS) and, in particular, the provision of accredited body services.”

“Equally, there are numerous fi rms introducing study programmes to encourage advisers to go beyond the regulatory requirements by becoming Chartered fi nancial planners. The Chartered brand is seen as a means of differentiation for prospective customers, staff and other professional fi rms: a recent survey among Chartered fi rms found that 82% believe their Chartered status has enhanced perceptions of the fi rm among existing staff and potential new staff, while 76% believe their status has enhanced perceptions of the fi rm among prospective customers and 45% believe their Chartered status has helped them win new business.”

The Institute’s total income was 12% up on 2010 at £38.1m, driven largely by growth in general insurance qualifi cations. But international revenues increased by an mpressive 20%, and demand for RDR-related exams inevitably contributed more to the coffers.

Whatever your personal feelings about RDR, it’s been a positive boon for the Chartered Insurance Institute, which has just revealed a 24% surge in the numbers of chartered fi nancial planning fi rms belonging to the organisation.


www.IFAmagazine.com

SANDY’S SURE Dr Sandy Scott, CII’s CEO,

said the requirements of the Aldermanbury Declaration

“undoubtedly contributed” to an increase in demand for

CII examinations.

N E W S R E V I E W C O M M E N T A N A LY S I SN E W SN E W SN E W SN E W SNews.indd 12 29/05/2012 22:42

NE

WS

Snakes and Ladders

The ratings agency issued its two-notch downgrade, from AA to A+, in late May in view of what it called “growing risks for Japan’s sovereign credit profi le as a result of high and rising public debt ratios.” It also warned that further downgrades may be on the way. “[Japan’s] fi scal consolidation plan looks leisurely relative even to other fi scally-challenged high-income countries, and implementation is subject to political risk,” it added.

Japan’s government debt mountain is famously running at 214% of GDP (OECD estimate) - a level which would have had even the

Greeks running for cover. The difference is that the great majority of this debt is held by Japanese householders, who are happy with tiny yields that foreign bondholders wouldn’t tolerate. They get little more from their share portfolios, that’s for sure. And this insulation from international pressure is why worries about the debt don’t go that deep in Tokyo.

Yet the economy remains sluggish, partly because of power shortages caused by the nuclear shutdown that followed the Fukushima meltdown last year. First-quarter GDP growth came to 1.0% compared with the previous three months, which equated to an annualised 4.1%. That probably looks good until you realise that you’re comparing it with the post-Fukushima, post-tsunami wipeout of a year earlier, which would make almost anything look good.

Much of the recent economic growth has been due to post-earthquake reconstruction spending, funded by the government. But that, of course, is only adding to the debt burden. Meanwhile, consumers have been spending healthily. But even there, not everything is as it seems. The government is considering doubling its sales taxes from 5% to 10% in the next couple of years. Hurry, hurry, before they decide to actually do it.

Typical. In the exact month when Japan’s economy seems to be getting back into gear, the country’s bonds get a downgrade from Fitch which adds insult to injury.

Facebook, the social networking organisation, got a stormy welcome to the stock market as its $38 IPO price in New York rose to $45 and then plummeted the next day to $31. Founder Mark Zuckerberg faced questions after dumping 30 million of his shares at the peak on day one – and also allegations of failing to publish an underwriter’s forecast that profi ts were weakening.


www.IFAmagazine.com

The double dip came back with a vengeance as it was announced that Britain’s fi rst quarter output had shrunk by 0.3%. And the Offi ce of National Statistics revealed that household consumption had risen by just 0.1%, compared with a 0.4% increase in fi nal-quarter 2011.

A N A LY S I SN E W S R E V I E W C O M M E N T A N A LY S I SN E W SN E W SN E W SN E W S R E V I E WR E V I E WR E V I E WR E V I E W C O M M E N TC O M M E N TC O M M E N TC O M M E N T A N A LY S I SA N A LY S I SA N A LY S I SA N A LY S I SNews.indd 13 29/05/2012 22:43

NE

WS Germany’s two year bond

yield hit an impressive record low of 0.02% in late May, prompting concerns that the yield might actually turn negative. The reason appeared to be that the infl ow of Greek investors seeking solid German deposits had meant that they would settle for bonds that paid nothing at all, rather than keep them in Greek instruments.

Barclays Bank is to sell its $6 billion holding in Blackrock, which it had held since during the 2009 deal that had transferred Barclays Global Investors to Blackrock. Of this, Blackrock will itself be buying £1 billion worth. The Basel III banking rules will soon make it more expensive for a high street bank to hold equity as part of its capital base.

Free Banking and the Tooth FairyBritain’s consumers might not exactly welcome the imposition of mandatory charges on their bank accounts that they currently get for free...


www.IFAmagazine.com

...but that’s the way it might turn out, according to Andrew Bailey, the executive director at the Bank of England.

Mr Bailey, who is hotly tipped to head the new Prudential Regulation Authority, told IFA Magazine that the supposedly free current accounts enjoyed by the British public are actually costing them deceptively large amounts of money because of the extremely low rates of interest paid on balances. And, indeed, that so-called free banking is a “dangerous myth” that might even be fuelling product mis-selling.

How so? It seems he was thinking of the way that non-charging accounts made it harder for banks to understand the cost of the services that they themselves provided, which may have contributed to the mis-selling of fi nancial products. Or that, by enticing loyal customers into

a close relationsionship, they might have found it easier to sell products such as PPI insurance. The ‘big four’, Barclays, Lloyds, Royal Bank of Scotland and HSBC are currently understood to be paying some £9 billion in PPI compensation.

“In short, I think that the reform of retail banking in this country cannot move ahead unless we tackle the issue of free in-credit banking, and have a much better sense of what we are paying for and how we are paying.”

And yes, Mr Bailey did say it might be necessary to intervene so as to force banks to charge – but he was understandably coy on how. He did, though, concede that banks’ reluctance to impose charges was understandable

– because they knew that the fi rst to take the plunge would

lose customers fast.

BAILEY BRIDGEBank of England Executive Director

Andrew Bailey said the free banking enjoyed by customers in

Britain when not overdrawn makes it hard to link costs to products

and services received.

Incoming!

The other special manager0800 856 5555 www.henderson.com

*% growth since managing the fund. 1 January 2005 for the Henderson UK Equity Fund, 3 February 2003 for the Henderson Cautious Managed Fund, 9 April 2009 for the Henderson Sterling Bond Fund, 24 November 2003 for the Henderson Strategic Bond Fund and 4 May 2009 for the Henderson UK Property Unit Trust. **Yields at 30 March 2012. Yields are shown net except for bond funds which are shown gross. The Historical Yield reflects distributions declared over the past 12 months as a percentage of the midmarket share price, as at the date shown. The Distribution Yield reflects the amounts that may be expected to be distributed over the next 12 months as a percentage of the midmarket share price of the fund at the date shown. The Underlying Yield reflects the annualised income net of expenses of the fund as a percentage of the mid-market share price of the fund at the date shown. Due to the specialist nature of property investment, in certain circumstances there may be constraints on the redemption or switching of units/shares in the Henderson UK Property Unit Trust. The Henderson UK Property Unit Trust invests in a specialist sector that may be less liquid and produce more volatile performance than an investment in other investment sectors. The value of capital and income will fluctuate as property values and rental income rise and fall. The valuation of property is generally a matter of valuer’s opinion rather than fact. The amount raised when a property is sold may be less than the valuation. Issued in the UK by Henderson Global Investors. Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Fund Management Limited (reg. no. 2607112), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), Henderson Alternative Investment Advisor Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE), Gartmore Investment Limited (reg. no. 1508030), Gartmore Fund Managers Limited (reg. no. 1137353), (each incorporated and registered in England and Wales with registered office 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Services Authority to provide investment products and services. Telephone calls may be recorded.

On our toes for income

Income remains a top priority for many investors. That’s why Henderson offers a range of income funds covering a spread of asset classes including equities, fixed income and commercial property. They are all run by experienced managers who have delivered great results. To put a top team on your side, choose Henderson for income.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Yield may vary and is not guaranteed. This advertisement is for professional advisers only.

Source: Morningstar at 30 March 2012, based on cumulative performance, UK sterling, mid-mid, net income reinvested for a basic rate taxpayer. Note: The Property sector average returns are based only on the 15 bricks and mortar funds within the IMA UK Property Sector.

HNS307_inc_IFA_070512.indd 1 24/04/2012 13:18


Incoming!

The other special manager0800 856 5555 www.henderson.com

*% growth since managing the fund. 1 January 2005 for the Henderson UK Equity Fund, 3 February 2003 for the Henderson Cautious Managed Fund, 9 April 2009 for the Henderson Sterling Bond Fund, 24 November 2003 for the Henderson Strategic Bond Fund and 4 May 2009 for the Henderson UK Property Unit Trust. **Yields at 30 March 2012. Yields are shown net except for bond funds which are shown gross. The Historical Yield reflects distributions declared over the past 12 months as a percentage of the midmarket share price, as at the date shown. The Distribution Yield reflects the amounts that may be expected to be distributed over the next 12 months as a percentage of the midmarket share price of the fund at the date shown. The Underlying Yield reflects the annualised income net of expenses of the fund as a percentage of the mid-market share price of the fund at the date shown. Due to the specialist nature of property investment, in certain circumstances there may be constraints on the redemption or switching of units/shares in the Henderson UK Property Unit Trust. The Henderson UK Property Unit Trust invests in a specialist sector that may be less liquid and produce more volatile performance than an investment in other investment sectors. The value of capital and income will fluctuate as property values and rental income rise and fall. The valuation of property is generally a matter of valuer’s opinion rather than fact. The amount raised when a property is sold may be less than the valuation. Issued in the UK by Henderson Global Investors. Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Fund Management Limited (reg. no. 2607112), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), Henderson Alternative Investment Advisor Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE), Gartmore Investment Limited (reg. no. 1508030), Gartmore Fund Managers Limited (reg. no. 1137353), (each incorporated and registered in England and Wales with registered office 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Services Authority to provide investment products and services. Telephone calls may be recorded.

On our toes for income

Income remains a top priority for many investors. That’s why Henderson offers a range of income funds covering a spread of asset classes including equities, fixed income and commercial property. They are all run by experienced managers who have delivered great results. To put a top team on your side, choose Henderson for income.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Yield may vary and is not guaranteed. This advertisement is for professional advisers only.

Source: Morningstar at 30 March 2012, based on cumulative performance, UK sterling, mid-mid, net income reinvested for a basic rate taxpayer. Note: The Property sector average returns are based only on the 15 bricks and mortar funds within the IMA UK Property Sector.

Henderson fund % growth*

IMA sector average % Yield %**

UK Equity Income 49.0 45.5 3.3 historic

Cautious Managed 86.6 69.1 4.3 historic

Sterling Bond 92.4 44.3 3.7 distribution 3.7 underlying

Strategic Bond 56.9 44.5 6.1 distribution 4.8 underlying

UK Property 26.1 21.7 4.4 historic

HNS307_inc_IFA_070512.indd 1 24/04/2012 13:18

A N A LY S I SNews.indd 15 29/05/2012 22:43

News.indd 16 30/05/2012 18:13

BRITAIN’S RELATIONSHIP WITH FRANCE IS GETTING TRICKIER, SAYS MICHAEL WILSON. SUDDENLY

EVERYBODY WANTS TO BE THE NEW PRESIDENT’S BEST FRIEND. TIME TO MAKE UP WITH GERMANY?

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FOR MERKEL

Cameron’s veto last December was a diplomatic disaster and he’s been in the European political doghouse ever since

Six months ago, IFA Magazine had one of those strokes of luck that only come along rarely. We’d run a cover picture for our December issue that showed David Cameron wearing an EU interpreter’s earpiece and looking utterly confused, which we’d captioned ‘Lost in Translation’. How opportune, then, that by the time the magazine hit the nation’s doormats the Prime Minister had declared war on perfi dious Brussels by exercising a rather

crude veto last-minute against a series of measures that had been helpfully intended to pull the EU closer together.

Cameron’s December veto had been a diplomatic disaster. Everything had stopped instantly, the

Brussels meeting had failed, and the Prime Minister had been consigned to the European

political doghouse, where he still largely remains. The veto, it seemed, had been

applied because of a tragic misunderstanding to the effect that France’s centre-right

President Nicolas Sarkozy might try to impose a Europe-wide tax on fi nancial

investments. It had wrecked one of Europe’s best chances to get itself out of a mess, his detractors said.

So was it all such a misunderstanding? Let’s set the record straight. Sarkozy would certainly have

diplomatic disaster and he’s been in the European political doghouse ever since


For today’s discerning financial

and investment professional

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11 ■

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7

RISING COSTS CAUSE

A STRATEGIC RETHINK

CHINA

EXCHANGE TRADED FUNDSTHE GOOD, THE BAD AND THE BAFFLING

LOSTIN TRANSLAT IONBRITAIN’S EUROPEAN

MESSAGE GOES UNHEARD

A CHEER FOR THE REGULATORSIT MUST BE THE SEASON

OF GOODWILL

GETT ING


Eds Soapbox.indd 17 29/05/2012 23:01

loved to enforce the Europe-wide tax – because anything that dented Britain’s predominance in

fi nancial circles would have been great news for France or Germany, both of which would be hoping to hoover up new business on the back of higher trading costs in London. But crucially, the problem for Sarkozy would have been that such a measure could only have been approved by a separate unanimous vote in Brussels - and that Cameron could have blocked that move quite separately without needing to trash the entire European consensus on so many other fronts, as he appeared to have done with his veto.

Britain had fi red off its very biggest naval gun against an enemy that hadn’t even rigged up the right sort of sails, let alone tried to sail in the right waters. Germany’s Christian Democrat Angela Merkel was spitting teeth about what she plainly saw as Britain’s provocative behaviour. So has that changed?

New numberSix months on, and the roundabout has travelled 180 degrees, and now there are different people riding the galloping horses. The pragmatic French centrist Sarkozy has been swept away by a socialist, François Hollande, who could hardly be more diametrically opposed to Messrs Cameron and Osborne’s own ideas. The new president wants to refl ate the French economy, abandon the austerity message, reject the growing dominance of the Brussels political machine, hammer the banks, postpone the pain of a tougher social security regime in France, go large on the subsidies and generally go for growth at all costs – all of which will not only infuriate the austere Mrs Merkel but will also drive down France’s bond credit ratings still further.

In theory, then, this ought to be Merkel’s big moment. The Federal Chancellor’s dour demeanour has hardly shifted since this time last year, when most of her exasperation was being vented at Greece’s bizarrely inconsistent government - and, to a lesser extent, at Italy’s Silvio Berlusconi, who seemed intent on abandoning his own country’s austerity measures and thereby condemning his own southern country to retribution from the provident north.

Germany, after all, can fairly claim to be Europe’s banker. The Bundesbank is stacked with cash - the result of Merkel’s own care and economic good planning, and of several years of impressively strong growth. Frau Merkel knows more than almost anybody about how to turn a faltering economy round.

Add to that the fact that the odious Mr Berlusconi has also lost power since the last time they talked. And that Greece’s politicians have been squabbling as the nation’s voters have come out

on the streets against their own Brussels-ordained austerity package. And that Spain and Portugal and who knows how many other countries are now teetering on the brink of needing bailouts, just as Germany had predicted. And that the Dutch government collapsed in May amid more bickering of its own about economic austerity. Shouldn’t all that have given more power to Mrs Merkel’s instinctively conservative elbow?

Transatlantic call Alas, it seems not. At the G8 summit meeting in Camp David on 18th May, it was the reprobate Monsieur Hollande whose hand President Barack Obama was keenest to shake. It was all a bit forced: there were some rather cringe-making remarks from the Prez about how cheeseburgers and French fries were just made for each other. But while Obama was piling on the cheese, Mrs Merkel was left alone with her sauerkraut as the two lefty-liberals declared a kind of transatlantic solidarity that few would have expected only a few months earlier. Why, even David Cameron was forced to splutter out a few words of collegial admiration for his gallic counterpart. It was a good job that George Osborne wasn’t on the platform, or he’d have choked on his pretzels.

What’s all this about? Well, partly it’s just that Mr Obama needs his own people to see him acting as a statesman who can welcome even the most intransigently wrong-thinking head of state into the fold. America’s press has no particular love for France at the best of times - but hey, there’s an election coming up. There are French-speaking voters in Louisiana. And by the way, wasn’t it France that gave America the Statue of Liberty?

Secure lineThere is, however, a more pressing issue to be considered here. Mrs Merkel has acquired a certain European notoriety during the last twelve months

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18 June 2012 www.IFAmagazine.com

Eds Soapbox.indd 18 29/05/2012 23:01

for her refusal to assign Bundesbank funding to the European rescue package. She has, of course, okayed Germany’s share of the offi cial bailouts, but beyond that she has made enemies by failing to volunteer further assistance. Indeed, it has become commonplace to accuse her of deepening and worsening the European political crisis by failing to show strong pro-growth leadership.

Mrs Merkel is well within her rights, in principle, to refuse the hand of northern largesse to the profl igate southerners. She is worried about her falling poll ratings, and she has no wish to annoy her own voters by handing out their money willy-nilly. More to the point, she could make a good case for saying, absolutely truthfully, that neither the European bail-out fund nor the imposition of austerity measures in Greece, Italy and Spain have made the slightest bit of difference to the way that those countries’ economies have nosedived.

Spain’s recent plunge might well have been due to the fact that, as far as anyone can see, its banks have now snarfed up all their entitlements of the 1% cheap-rate loans that the European Central Bank offered last Christmas so that national banks could soak up as much of their countries’ sovereign debt as possible. So what happens once Santander and the rest can no longer afford to buy Madrid’s bonds? The prices will go down, the yields – already above 5% - will rise further, and the banks themselves will come

under pressure. As, indeed, they may have done by the time that you read this.

Pay as you go Now, consider how America has tackled its own version of the recession problem. Washington’s government defi cit is as large as almost any of the European administrations, at least in per capita terms. Its unemployment is above 8%, and its property market has been half wiped out by the events of the last fi ve years. And yet its retailers are now reporting a wave of ‘austerity fatigue’ that’s seeing tens of millions of people suddenly out there in the malls buying cars and clothes.

Quite impressive, considering that a raft of ex-president George W Bush’s tax breaks are

due to expire in the next twelve months.What are we to make of this?

Could it be that the US answer – which boils down to “never mind the future, we need the jobs and the demand now” - is working better than the austerity medicine that so obviously hasn’t worked for Greece or Spain?

Personally, I have my doubts. But that’s certainly the

message that François Hollande is demanding that his European

neighbours should consider.Ronald Reagan proved back in

the early 1980s

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Blue is the colour! David Cameron celebrated Chelsea’s penalty shootout win over Bayern Munich in the Champions League fi nal with arms aloft and clenched fi sts. A couple of feet away stood a ‘stonyfaced’ Angela Merkel. He admitting that the pair did “hug and make up afterwards.”


Eds Soapbox.indd 19 29/05/2012 23:01

Do you have a good reason for the Editor to jump back onto his soapbox? Not that he needs any encouragement, please send your requests to [email protected] and stand well back!

that it was perfectly possible for the United States to infl ate its way out of recession with

massive demand subsidies – although, in his case admittedly, the President accompanied those subsidies with some quite outrageous import quotas and tariffs, export subsidies and other free trade interference that wouldn’t be tolerated today. Either way, in the end the enlarged US debt didn’t matter: people wanted the dollar bonds anyway, and so the greenback stayed strong.

Emergency calls only So, if that reckless spending tactic has worked for America, both in the past and in the present, could it work for Europe? That’s a harder question. The US dollar is still mightier than the euro, at least as far as attracting Asia’s attention is concerned. And the buck has the additional advantage of being backed by a federal system that doesn’t allow its 50 states the fi scal freedom to mess things up. You don’t fi nd poor states like Mississippi or beaten-down places like Detroit being publicly accused of endangering the dollar with their errant behaviour.

And yet. The euro is the world’s second most important currency, which isn’t bad from a standing start twelve years ago. It has overtaken the dollar as the world’s favourite denomination for corporate bond issues. Its place in China’s trade relationships is already such that the tremors in Brussels and Frankfurt are causing aftershocks in Shanghai and Chongqing. Its banks are deeply enmeshed in

counterparty arrangements that will make things very messy if even one of the euro club members is forced to quit.

In short, if the euro goes down the consequences are all but unfathomable. You could make a good case for saying that the European currency is too big to fail. But then, the last time we said something like that – about the banking system – only some of us actually meant it. This time, we had better be serious.

Poor signal So where does this leave David Cameron and George Osborne? Alas, one reason why their names are still mud in Europe is their ostentatious unwillingness to identify with moderate centre-right EU contemporaries such as Mrs Merkel. (They pulled out of the European People’s Party grouping in 2009, under pressure from the Tory right wing, for which they haven’t been forgiven yet.) But what Europe ought to have noticed is that Cameron and Osborne are also running the continent’s most successful austerity programme – a sweep of

government cuts so breathtakingly deep that it’s probably safe to say that no other EU

member state would have accepted them without rioting in the streets.

So far, Mr Cameron’s commitment to austerity is working, albeit painfully and at the cost of low growth. But now that Hollande is yelling for

a Europe-wide abandonment of the austerity principle and a return

to higher-risk growth, they probably need to warm up their slightly frosty

relationship with Mrs Merkel. Neither of them will fi nd that easy.

Cameron’s unwillingness to identify with his centre-right EU

contemporaries such as Mrs Merkel

is proving to be a big problem



Eds Soapbox.indd 20 29/05/2012 23:01

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

Sparkling investments || JULIUS BAER LUXURY BRANDS FUND

Swiss & Global Asset Management (Luxembourg) S.A. UK Branch 12 St James’s Place, LondonT +44 (0) 20 7166 [email protected]

The exclusive manager of Julius Baer Funds.A member of the GAM group.

Eds Soapbox.indd 21 29/05/2012 23:01

TOO FAST, TOO FURIOUS

...and many people vote as much by their feelings of optimism for the future as they do for their political beliefs. And on this reckoning, on the offi cial fi gures,

President Obama has some cause to be proud.

Rightly or not, the president is held accountable for

the state of the economy...

It might lack the drama of the next Greek election - with everyone currently on edge waiting for a wave of resulting euro exits and certain fi nancial Armageddon - but the forthcoming US presidential election hinges every bit as much on the economy as the Greek one. Which makes it rather inconvenient that things in the States are not quite as optimistic as

they might appear.

The Headline NewsRightly or not, the president is held accountable for the state of the

economy, and many


22 May 2012 www.IFAmagazine.com

US Elections.indd 22 29/05/2012 23:04

people vote as much by their feelings of optimism for the future as they do for their political beliefs. And on this reckoning, on the offi cial fi gures, President Obama has some cause to be proud.

Employment is higher than when he entered offi ce, with over 3.7 million jobs added since the labour market bottomed in early 2010. The private sector actually added 4.3 million, but the public sector has cut jobs—not a bad thing for a Democratic candidate to have done, actually, as the opposition usually tries to cast the Democrats as big government lovers.

And the economic news isn ‘t bad either. While much of Europe has slid back into recession – even supposedly safe countries like the UK - the US economy has avoided a double dip, growing by 1.7% in 2011

and continuing at an

annualised rate of 2.2% in the fi rst quarter of 2012.

Industrial production also looks positive, rising by 5.2% year-on-year in April and by 1.1% month-on-month - the largest monthly gain since December 2010. The data shows improvements across all industrial sectors and suggests a robust 2012.

Households also look like they are in a better position than they were just six to nine months ago, with private consumption starting off the year strongly. Cars, household durables and clothing are all selling well as the so-called ‘austerity fatigue’ sets in.

But Is the Picture That Rosy?While employment is up, total employment is still 5 million jobs short of its peak and unemployment (8.1%) is still high by American standards. Some of the apparent drop in unemployment has actually come from people who have just

given up the job hunt. And there are many

more who may be technically

employed

but are “underemployed” working part-time or at lower salaries than before. Job growth actually decelerated in March.

The economy did indeed grow at 2.2% in the fi rst quarter – which is impressive compared to the stagnation in Europe - but that was still less than expected, and lower than the 3% growth it managed in the fourth quarter of 2011.

GDP is now heavily reliant on private consumption - it represented the bulk of the fi rst quarter growth. It’s been happening because of strong GDP and jobs fi gures in the fi nal quarter of last year, along with increases in consumer credit, which have increased consumer confi dence in the fi rst quarter of this year. Pent-up demand for vehicle purchases also played a contributing role to the boom, because supply chain problems following the Japanese earthquake in March 2011 had disrupted sales into the second half of last year. But, with that pent-up demand spent for a while, and consumer confi dence fi ckle, it can’t be relied on to carry

US ELEC

TION

STOO FAST, TOO FURIOUS

AMERICA IS BOUNCING WITH PUBLIC CONFIDENCE, SAYS MONICA WOODLEY. BUT ITS POLITICIANS ARE KICKING A VERY IMPORTANT CAN DOWN THE ROAD



growth for the rest of the year.

Investment by businesses can no longer be relied on to pick up the slack. Non-residential private fi xed investment—essentially investment by businesses—declined by 2.1% in the fi rst quarter of the year, the fi rst drop in nine quarters.

That decline in business investment does not bode well for the prospects of economic recovery, which relies on companies becoming more confi dent about investing. Companies periodically become cautious about the durability of the US and global recoveries, with recession in Western Europe weighing on business confi dence and exports. And this in turn will hold back growth in industrial production for export.

Looking to Government for LeadershipA recent report by the Economist Intelligence Unit, Search for Growth, which surveyed institutional investors around the world, found consensus in the belief that growth in 2012 depends more on political leadership than anything the private sector can do. Considering the lack of apparent will by either

political party to take decisive policy steps in the run-up to the election, this is a major concern.

Congress has been mostly deadlocked since the mid-term elections in 2010, which gave the Republicans control of the House of Representatives and left the Democrats running the Senate. Fiscal policy has been the biggest source of confl ict: whereas the Republicans refuse to consider tax increases of any kind, demanding unprecedented spending cuts instead, the Democrats insist that they will not consider any plan that does not include tax hikes on the wealthy, and they refuse to accept deep cuts in social programmes.

The rise and rise of the Tea Party has been a particularly potent factor behind the increasingly uncompromising position being taken up by the Republicans. The recent defeat of Indiana Senator Richard Lugar in the Republican primaries—after 36 years in offi ce—by a Tea Party candidate has got other Republicans running scared that they too will lose their seats if they are seen to accommodate Democrats in the slightest way. So until the election, the legislative process will remain severely dysfunctional.

US

ELEC

TIO

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“I don’t remember a time when so

many topics have become politically

unmentionable,”bemoans Indiana’s outgoing Republican Senator

Richard Lugar after suffering a resounding 20-point defeat at the hands of challenger,

Richard Mourdock, a 60-year-old state treasurer who has promised never to compromise with

Democrats and was backed by millions of dollars of advertising paid for by outside Conservative

action committees, or “Super PACs”.

Hobbled by the Election Earlier this year, President Obama won an extension of the payroll tax cut that has been boosting demand - but that tax break still expires at the end of the year, as do the Bush-era income tax cuts. And then there’s the federal borrowing limit, which will also need to be increased - and who could forget the trouble this caused last summer, when the US government was driven to the brink of default by bickering politicians?

The stakes here are probably higher than they look. Under the budget deal that was hammered out last August, any failure to agree on raising the debt ceiling, or of fi nding a way to reduce the budget defi cit, will set a series of pre-programmed events in motion - and neither party will be happy with the result. For a start, those income and payroll tax cuts, along with an investment tax credit and enhanced unemployment insurance, will expire. And then there’ll be across-the-board cuts to both domestic spending and defence spending that will cut about $100 billion from government spending next year. Democrats shiver at the prospect of shedding entitlements such as government-funded pensions; Republicans, on the other hand, fume at the thought of defence cuts.

To put it bluntly, this automatic series of events would be disaster. The combined effect of spending cuts and what would effectively be tax hikes would knock about 3.6% off GDP in 2013. And that’s just what the Congressional Budget Offi ce says - independent analysts reckon it could be as much as 5%. Even the lower end of that spectrum would be enough to tip the economy back into recession. And yet the parties have no incentive to try to deal with this developing disaster until after the election.


24 May 2012 www.IFAmagazine.com


And When It’s All Over? So what will happen if Barack Obama is re-elected in November? He will presumably be more willing to let the Bush income tax cuts expire than he was before. He may also not have to worry about hitting the debt ceiling until February 2013. The Republicans will probably still control the House of Representatives and possibly the Senate, but they may be more ready to strike a bargain if they realise this fact.

But the likelihood of anybody passing complex changes by the end of the year is slim. The best that can be hoped for is probably that the parties can agree a framework, extending some tax cuts and delaying the pre-programmed events they both dread, and generally buying some time.

Things will be no better if the Republican contender Mitt Romney wins in November. The Republicans will have no obvious incentive to negotiate with a lame-duck president (Obama), who would still be in the White House until January 2013. That’s a delay that America can only barely afford.

The Best of a Bad Bunch Whoever wins in November, the political situation is likely to remain murky because there is little agreement between Democrats and Republicans on the future fi scal path. And there is no guarantee that credit-rating agencies will not lose patience with the bickering and downgrade US debt.

But considering the situation in Europe, investors who want to stick with developed markets have few alternatives. GDP growth of 1.7% in 2012 and 2.2% in 2013, as estimated by the Economist Intelligence Unit, is not to be sneezed at compared to Europe’s rather pathetic outlook, and American companies are proving fairly resilient and profi table after years of cost-cutting.

At the same time, yields on US Treasuries have been falling, as concerns over repercussions from a possible Greek exit from the eurozone have increased the demand for a safe haven. And that’s the way it’s likely to stay for some time yet. The US may stay the best of a bad bunch by default.

Things will be no better if the

Republican contender Mitt

Romney wins in November

The Republicans will have no obvious incentive to negotiate with a lame-duck president (Obama),

who would still be in the White House until January 2013. That’s a delay that America

can only barely afford.

US ELEC

TION

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IFAmagazine.com



PEOPLE WHO LIVEIN GLASS HOUSES...A

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It’s been a busy time for the regulatory speech writers. Hector Sants delivered his last speech as Chief Executive of the FSA and Martin Wheatley, his successor at the FCS spoke twice, all in the space of a fortnight.

We used to fear “regulation by speech”. It was hard enough to divine the meaning of rules in the ever-expanding Handbook without having to check the speaking engagements of FSA managers of varying seniority to work out what was expected of us. But FSA speechwriting does provide strong clues as to the real thoughts, concerns and motivations behind the specifi c rules and decisions that the regulated community has to grapple with.

Mr Sants’ speech was not merely a contemplation on his years in charge, but a clear statement of future intent, presumably agreed with his successor. And I’m afraid.

“Constructive Tension”Sants told us that a company board must “set the right tone” for the organisation and must be constructed to avoid “group think” and “herd mentality”. Yet his analysis of corporate governance and organisational culture in fi rms that failed in the fi nancial crisis could also, shockingly easily, be applied to governance and culture at the FSA - especially inadequate understanding of aggregation of risk - and regulators without appropriate technical competence in authority over the regulated. Let he that is without sin...

We need, apparently, a suffi cient understanding of the issues and the confi dence to speak up so that debate can be enhanced, with the Chair creating an environment where this confi dence and debate is encouraged and valued. Physician, heal thyself?

Mr Sants clearly expects leaders to be driven by the desire to ‘do the right thing’, or integrity in other words, but he also recognises that this isn’t going to happen. He argues there should be a “constructive tension” between regulator and fi rm, yet continues to maintain we should be frightened of the FSA. Fear often leads to tension, but it’s rarely constructive.

The Right Sort of Fear?Fear is also an extremely bad basis for any relationship, regulatory or otherwise. It has unintended consequences. People will not own up to failures and will hide their mistakes. They will not ask for help if they are unsure, in case their confession of ignorance is itself punishable. They will say and do the right things publicly but behave differently in private.

But no-one works (or lives) well in an environment of fear.

Furthermore, constructive tension implies two things, joined, associated, linked, but pulling in different directions. Good and bad. Profi t and social responsibility. Sales targets and treating customers fairly.

So, where is the regulatory dividend for those who are doing the right thing, whose organisational culture does display all the right characteristics, who do care about their clients, whose incentives are driven by integrity, not fi nancial reward?

So Mr Wheatley, as you settle in to your new offi ce, two things :

Firstly, please understand that we want to “do the right thing” but we do not want to be afraid (and, frankly, you don’t want us to be afraid either).

Secondly, you have standards, but so do we. We are accountable, but so are you.

THE FSA IS LECTURING US ABOUT ACCOUNTABILITY, SAYS IFA CENTRE’S GILLIAN CARDY. SO LEAD US FROM THE FRONT, PLEASE


www.IFAmagazine.com



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OPEN-ENDED QUESTIONSADVISERS ARE RISING TO THE WHOLE-OF-MARKET CHALLENGE, SAYS KAM PATEL. BUT HOW WILL IT SEEM AFTER RDR?

It isn’t too difficult to see why Open Ended Investment Companies and unit trusts have been so popular for so long with independent financial advisers. Their ready availability on platforms and their huge range have given them a distinct advantage over alternative, closed end investment trusts, for instance. Most importantly, of course, advisers have benefited from being paid a commission by providers for recommending them to clients.

The introduction of RDR from next year will of course mark the general end of commissions and impose a demand that properly independent IFAs should consider the full range of investment funds that might be suitable for clients - including the likes of investment trusts, exchange traded funds, life insurance funds and offshore funds, as well as UK-based unit trusts and Oeics.

For obvious reasons, investment trusts in particular are excited by the potential of RDR to open up demand for their vehicles. But the limited range of offerings could be a problem. And there might also be issues relating to transparency - with ratings agency Morningstar recently bemoaning a general lack of holdings disclosure across the sector, and pointing out in particular that 80 such funds with a combined

£16 billion in assets are still not revealing a full portfolio listing at least once a year.

This lack of disclosure, says the agency, will mean that advisers will lack some of the critical information they need if they are to carry out accurate comparisons between open-ended funds and investment trusts. And it warns that, for investment trusts to truly compete alongside open-end peers, they need to be much more transparent. So it looks as though the closed-ended sector may have a while yet to run before advisers can be tempted away.

But First, a Little HistoryOeics, which were launched in the late 1990s, are widely (and rightly) regarded as successors to unit trusts, but with more freedom. Indeed, many unit trusts have converted to Oeics especially in recent years. Since both types of fund are open-



OIECs.indd 28 29/05/2012 23:06

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ended, they can expand and contract in response to demand and withdrawals, and so there is never any need for a premium or a discount.

A key difference between the two, however, is that, rather than issuing units, as with unit trusts, Oeics issue shares and can even list on the stock exchange if they choose, rather like an investment trust. Furthermore, Oeics are valued daily and a single price is quoted for both buyers and sellers alike - unlike unit trusts, which operate on a bid-offer spread basis. Oeics can incorporate sub-funds, for instance based on geographical regions, which allows investors to sell units of one sub-fund and buy those of another – all of which helps to minimise dealing costs.

The single pricing of Oeics and the resulting additional liquidity are a major plus, because it allows providers greater fl exibility in terms of offering these types of products as part of larger portfolios. What’s more, because Oeics are companies rather trusts, no trustee is involved, which means a modest saving on administration costs. But of the two, Oeics arguably offer a more transparent charging structure.

The UK launch of Oeics in 1977 was, in turn, a direct response to a 1985 Brussels directive to allow cross-border promotion of

funds within the European Union. Called Undertakings for the Collective Investment in Transferable Securities (Ucits) funds, these products too were always intended to be open-ended, able to invest in a wide range of securities including fi xed income and equities. But the launch was, frankly, shambolic because of the wide divergence of laws between EU member states, and it wasn’t until 1998 that the so-called Ucits III directive was produced. (Don’t even ask what happened to the stillborn Ucits II…)

Suffi ce it, for the moment, to say that Luxembourg and Dublin have established themselves as major domicile centres for Ucits of every kind – largely due, in Dublin’s case, to a particularly generous tax regime. The Ucits IV rules, which were approved in 2009, cemented the regime further by establishing a set of Key Investor Information (KII), a system of co-operation between Member State Supervisory Authorities, and a Management Company Passport which has signifi cantly improved liquidity.

These days it’s nothing unusual to fi nd Ucits domiciled from as far away as Malta being sold on the UK market. And one offi ce in Paris, say, will be enough to let a fund manager control not just UCITS from several Member


OIECs.indd 29 29/05/2012 23:07

States, but also a Luxembourg SICAV, a French Fond Commun de Placement, and an Irish

VCC or unit trust. Now that’s effi cient.

All Conquering OeicsThe effective harmonisation of Oeics with Ucits and their attractive, hybrid unit trust/ investment trust structure has certainly helped to ensure their resounding success versus unit trusts so far. According to Lipper data, UK sales of Oeics across classes including bonds, equity, mixed assets and fund of funds in 2009 and 2010 totalled just over £35 billion for both years, but fell to £15.5 billion over the diffi cult 2011. This year has seen a modest rebound, with fi rst quarter sales hitting nearly £6 billion. Oeic assets under management currently total nearly £419 billion.

If that sounds impressive, it is. Unit trust sales totalled just £8 billion during 2009, rising to £12.7 billion in 2010 but slumping to a catastrophic £2.1 billion in 2011. Alas, that wasn’t the end of it. Sales for fi rst quarter of 2012 totalled just £429 million - barely one fourteenth of the equivalent levels for Oeics - and total unit trust assets under management currently stand at £239bn - more than 40% less than for Oeics.

Ucits Show MettleBut if you think that’s a lot, wait till you see the market in Ucits. Carne Group, the specialist provider of fund governance and support services for the global asset management industry, estimates that by the end of 2011 Ucits funds accounted for assets of US$5.6 trillion. Yes, that’s right, nearly 14 times as much as Oeics, accounting for well over three quarters of the EU’s collective fund purchases.

But by no means all of the Ucits interest from European Union countries. Carne points out that Ucits have also become a global brand - being widely sold outside of the EU in Switzerland, Asia, South America and South Africa. Indeed, according to Carne’s research, 70-80% of publicly sold funds in Asia are now Ucits.

Like Oeics, modern-day Ucits are open-ended funds that deliver simple, transparent pricing and the absence of any bid-offer spread. And new Ucits funds are now being launched at regular intervals to meet growing demand in the UK. In May, for instance, Investec Structured Products launched its fi rst Ucits fund. Called the Objective Returns Fund, it aims to providing investors with targeted equity-linked returns, daily liquidity and protection from counterparty risk.

And in April, as reported by IFA Magazine, Russian fi rm Troika Dialog Asset Management hailed the launch of two Ucits-compliant funds aimed at enabling international investors to gain access to Russian equity and fi xed income opportunities. One of the launches, The Russian Long Term Capital Appreciation Fund, will hold a diversifi ed portfolio of Russian equities, including blue chips, mid and small cap stocks. The other, the Russian Fixed Income Fund, will invest in a portfolio of rouble-denominated sovereign, municipal and corporate bonds with medium to long term duration and high credit quality.

Other notable launches have included the UK Autocall fund from Citigroup’s retail structured product arm CitiFirst. This Ucits vehicle, made available in late 2010, was designed especially with the UK IFA community in mind and accessible through fund platforms and offshore insurance bonds.

OIE

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OIECs.indd 30 29/05/2012 23:07


www.IFAmagazine.com

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“The effective harmonisation

of Oeics with Ucits has

certainly helped to ensure their

resounding success versus

unit trusts so far”

To Be Or Not To BeClearly, the growth of Ucits demands everyone’s attention as advisers come under pressure from RDR to consider such funds, along with the whole host of alternatives including ETFs and investment trusts. That is, of course, if they wish to remain classed as ‘independent’ - implying that they must consider the whole of the market when recommending products to clients.

Indeed, the whole matter of adviser classifi cation is building up a head of steam as formal RDR enforcement comes into view – requiring, as it will, that advisers state clearly and upfront the type of advice they are offering, and whether it is ‘independent’ or ‘restricted’. And that’s before we even talk about the impending abolition of the commission system under RDR and its replacement by adviser charging.

The RDR Issue Ah yes, you’re probably saying, but what about the task of comparing open-ended with closed-ended funds? How does the market intend to achieve comparability, given thattheir charging structure is so different?

The truth is, we don’t know yet. But the Association of Investment Companies (AIC) has altered its charge methodology this year to allow easier comparison of its members’ closed-end funds with open-ended rivals such as investment trusts during the run-up period. The AIC announced in May that its website will stop publishing Total Expense Ratios (TERs), and that it will replace them instead with what it calls an “Ongoing Charges” fi gure.

This new fi gure is to be calculated by the aforementioned Morningstar, employing AIC’s own algorithms and methodology. AIC is also suggesting that its members use the

same methodology when preparing ‘ongoing charges’ fi gure in their own publications and their own client communications. The hope is that the new ‘ongoing charges’ routine is that it will meet the expected new European rules on investment companies when they produce Key Investor Information Documents (KIIDs).

Meanwhile, providers themselves have been busy preparing new products that will give their existing Oeics the characteristics of conventional open-ended shares after RDR. In May, for instance, Investec Asset Management announced the launch of some 39 ‘clean’ share classes ahead of the year-end RDR deadline, which will effectively provide an alternative means of accessing its £10 billion UK Oeic range.

One of the attractions here is that the new ‘clean’ shares will carry an annual management charge of only 0.75% – which is about half what retail investors usually pay. The new funds will sit alongside the existing share classes, which charge 1.5%, “to support our historic book of business”, according to managing director David Aird.

We’re going to see a lot more of this sort of thing happening between now and January. Indeed, the question on some people’s lips is now the traditional investment trust sector can respond. Will the spreads narrow as the newcomers move in? Will we see a reduction in premiums? (A drop in discounts seems strangely improbable.) And how easily will the IFA community adjust to the new situation?

We don’t know, But it’s going to be fun fi nding out.


OIECs.indd 31 29/05/2012 23:07

BEWARE OF GREEKS BEARING GIFTSE

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Flying home from a relaxing holiday in the sun and trying to catch up with the news, there seemed only one topic in the general, let alone the financial, press – the future of the euro. Given that I’d just spent two weeks spending euros in a country that was already in hock to the European bail-out fund and the IMF, it felt rather strange to contemplate the potential ending of one of the greatest financial experiments of our times.

When the single European currency was first mooted, one of my colleagues – Tim Congdon, a leading economist who had been adviser to a number of Chancellors of the Exchequer – stated that it wouldn’t happen. In formulating this view, he clearly underestimated the political will present in Germany and France. But when it actually came to fruition, he still said it would not work. He may still be proved right.

Greek Bust The failure of the Greek political leaders to form a government and the election of a new president of France has unsettled markets in no small fashion. And right now, all the talk is of a Greek exit from the single currency. Certainly, the austerity visited on Greece as the price of the rescue package has taken a significant toll on the country and its people. Unemployment among the young approaches 50%, the economy has shrunk by 20% in just four years, and there are soup kitchens on the streets of Athens.

But surely, the sceptics say, the Greek economy is just a small proportion of the Eurozone? Dumping the euro and re-embracing the drachma can’t be that difficult – can it? And just think how such a move could stimulate the economy there. Tourism would suddenly be competitive again. Aaah, would that life were that simple.

Counterparty Culture Whatever the rights and wrongs of economic management in Greece, the fact remains that we are all intertwined through the financial system. Banks borrow from each other and from their central bank. The central banks also have relationships with similar organisations in other countries and, of course, with the European Central Bank. A Greek withdrawal would have a knock-on effect of incalculable proportions.

And that’s only the start of it. The exit of even the least important member of this club raises the question - is membership of the euro now optional? The very idea that other countries might follow suit would see a flight of capital to those countries deemed to be most secure.

And this is the reason why the demand for sterling is strong – although it damages the competitiveness of our exporters and hurts our pension annuities.

THE JURY IS STILL OUT ON THE SINGLE CURRENCY, SAYS BRIAN TORA



JM Finn.indd 32 29/05/2012 23:07

BEWARE OF GREEKS BEARING GIFTS


www.IFAmagazine.com

Already, there are straws in the wind. Kent County Council recently withdrew its short-term deposits from the UK arm of Santander. The Council had been damaged by the Icelandic banking collapse, and it was unwilling to take the risk that the Spanish banking system might be in trouble if Spain were also to be forced out of the Euro.

Strength from Austerity? But there is a real debate now taking place – at last, you might think! – as to whether or not austerity can really restore growth. This is Francois Hollande’s

stance (he says no, by the way) and it will almost certainly be the approach of any Greek

government ushered in by the upcoming elections in

Athens. Angela Merkel (who says yes) will

be mindful, too, of the Bundesbank’s

exposure to the weaker, southern European states – which is believed to amount to the equivalent of a quarter of Germany’s annual GDP.

In the meantime, all this uncertainty is damaging sentiment, tainting economic prospects and unsettling markets. With disagreement amongst Europe’s leaders and the absence of any magic wand to wave, the volatile situation could continue for a little while yet.

Much will depend on the voices of the people, as they square up to the demands of political leaders for continued belt-tightening. It might all prove to be a wonderful investment opportunity, but it’s a brave adviser that stands out against the crowd in these conditions.

*As we pay all running costs out of our AMC, we expect that our AMC will be the same as our TER. This advertisement is directed at investment professionals in the UK only and should not be distributed to retail investors. The value of investments, and the income from them, may fall or rise and investors may get back less than they invested. The material contained in this document is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information in this document does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this document when making any investment decisions. Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Services Authority. © 2011 Vanguard Asset Management, Limited. All rights reserved. UK11/0882/0911

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JM Finn.indd 33 29/05/2012 23:07

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Although investors may have breathed a sigh of relief after the eurozone confi rmed this month that it had narrowly escaped recession, political risk still looms large over European equity markets.

Greece has of course again taken centre stage after failing to form a government,

prompting members of the European Central Bank to air the issue of a potential

Greek exit from the euro for the

fi rst time. But in the eurozone core, the new Socialist French president François Hollande was elected on an anti-austerity mandate which may threaten the European fi scal stability pact.

The re-emergence of the eurozone debt crisis has caused the FTSE Eurofi rst 300 to fall to the level at which it began the year, wiping out all the gains of the risk-on rally of the fi rst quarter.

For many investors, a relatively stable income is at the top of their agenda.

EUROPE: BUY COMPANIES, NOT COUNTRIESANDREAS ZOELLINGER, CO-MANAGER OF THE BLACKROCK CONTINENTAL EUROPEAN INCOME FUND, SAYS THAT MAJOR COMPANIES HAVE STRENGTHS THAT GOVERNMENTS DON’T

21 high-yielding telecoms companies including household names like

Deutsche Telekom and Vodafone



Guest Insight - Blackrock.indd 34 29/05/2012 23:08

However, today’s environment is making that increasingly elusive. The search for yield has been notably thrown into the spotlight as interest rates remain at historical lows. This factor, combined with anxious investors, has driven the yields on “safe haven” sovereign bonds below 2% in many cases. Earlier this month, the fl ight-to-safety pushed the yield on the benchmark 10-year German bund below 1.5% for the fi rst time.

Avoid Europe? Not Necessaily The problems faced by Europe do not necessarily mean investors should shun stocks in the region – perhaps the contrary. European dividend yields are currently the highest in the world at above 4.8%. How so?

Europe boasts some of the biggest brands in the world –solid companies that may be able to withstand recessions thanks to their global franchises and strong cash fl ows. Experience has shown that some big companies tend to at least maintain, and usually increase, their pay-outs during recessions, while their core share prices tend to hold up better during market routs due to balance sheet strength. Part of the reason for the cash fl ow strength of European companies lies in the fact that more than 50% of their revenue is generated outside of the continent, with an increasing proportion from high-growth emerging markets.

As always, stock selection is key to picking the winners. The recent fi rst-quarter earnings season was tough for many companies, so the art of income investing means looking for longer-term resilience rather than chasing quick returns. And there is no shortage of such stocks to choose from:

■ Europe contains more than 195 companies with a market capitalisation above €1 billion that also have dividend yields of above 4.5%.

■ The continent is home to 21 high-yielding telecoms companies including household names like Deutsche Telekom and Vodafone.

■ A world that has become over-reliant on service industries, Europe has 10 high-yielding, high quality industrial companies including names such as BASF and Bilfi nger Berger.

■ Smoking may well be bad for your health, but it isn’t bad for your dividend payments. Some of the best dividend payers have consistently been Imperial Tobacco and Swedish Match.

■ Given the spate of recent disasters, from the Japanese tsunami to the New Zealand earthquakes, you would be forgiven for avoiding insurance companies. Yet

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10 high-yielding, high quality industrial companies including names such as BASF and Bilfi nger Berger



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companies such as Swiss Re and Zurich are not skimping on their dividends.

■ Likewise, not all banks are facing problems. The Nordic region is a particular haven of stability, seeing strong dividend payments from Swedbank and Handelsbanken.

■ Other European companies are also global franchises. Many American brands, for example, are no longer owned by Uncle Sam, but by European powerhouses. Budweiser is now owned by Belgian company Anheuser-Busch Inbev while Ben & Jerry’s ice cream is owned by Unilever.

Are High Yields Sustainable?Our favoured sectors in the high-yield space include the traditional defensive staples such as tobacco and telecoms but also energy, infrastructure and insurance. Yields for these sectors in Continental Europe (excluding the UK) in 2012 are expected to be 3.7% for pharmaceuticals, 7.0% for utilities, 4.1% for construction and materials companies, and a whopping 9.7% for telecoms companies..With oil prices remaining high, the energy sector also now possesses a ‘high quality’ tag – Société Générale expects dividends from the oil and gas industry to yield 5.4% in Continental Europe this year.

A perhaps surprising addition to the high-yield list has been fi nancials, which have recapitalised since the 2008 credit crunch crisis. Dividend yields of 5.4% are expected in the sector this year, though my own fund remains highly selective in this volatile part of the market where the risk of dividend cuts remains high and are currently signifi cantly underweight fi nancials.1

Can high dividend yields be sustainable? After all, the continent is facing a low-growth environment, and despite their large levels of overseas business, European companies still sell in the domestic economy. The short answer is ‘yes’, due simply to the vast amounts of cash that European companies are currently sitting on.

At the end of March, members of the STOXX Europe 600 Index had €614 billion of cash on their balance sheets, equivalent to almost 11% of their stock market capitalisation. This has been accumulated as companies have deleveraged and retained profi ts as cash rather than engage in expensive M&A on which returns may be low or unpredictable. Due to this balance sheet strength, dividends for 2012 are forecast by Société Générale to grow in Europe by 6.6% this year, or more than twice the April rate of eurozone infl ation.

Income strategies outperform in a low growth environment

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Consider also the currently low pay-out ratios in Europe – the proportion of a company’s net profi t that is paid in dividends. Ratios peaked at 75% in 2008-2009 before the effects of the fi nancial crisis caused companies to conserve cash. They are currently at about 45%, allowing cash-rich companies scope to become more generous to their shareholders, particularly given the recent reticence to engage in M&A.

Meanwhile, European stocks remain cheap by historical standards, as the equity market has been dragged down by eurozone fears that refl ect concerns over debt and austerity rather than company fundamentals. The market is currently trading on a price/earnings multiple of just under 10 times compared to the long-term average of 13.5.

The following two charts show how income strategies can outperform in downturns, as dividend payments have proved to be less volatile than falls in earnings in previous crises or recessions:

A Proven Method To sum up, successful dividend investing can be achieved by focusing on high-quality companies with sustainable business models which can pay and increase dividends over time. That doesn’t mean that investors should always look for the dividend stocks with the

highest yields: such companies can form the classic ‘dividend trap’ where dividends are artifi cially high because there are operating issues at the company that may prevent profi ts, and therefore share prices, from growing as well. Investors may subsequently experience lower risk-adjusted returns over time, with a higher risk of a dividend cut. BlackRock’s strategy is to typically avoid those companies – because, if it sounds too good to be true, it usually is!

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www.IFAmagazine.com

Equity income investing is well suited to current European conditions

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companies with a companies with a companies with a market capitalisation market capitalisation market capitalisation

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At a time when the pressure is growing on advisers to beef up their service levels to clients while also meeting tighter regulatory standards post-RDR, there are many who are opting to outsource various parts of their operations to expert services – whether it’s risk assessment, back offi ce management, compliance, you name it.

But few have gone quite so far - or so fast - as Brunel Capital Partners, a newcomer to the wealth and planning scene, which has recently opted to bring in Discretionary Fund Management specialist JM Finn as its main investment provider. By buying straight into JM Finn’s investment expertise, Brunel says, it has left the way clear to focus on its own particular strengths, which lie primarily in fi nancial planning.

The logic here seems fl awless. Of all the changes that are likely to arise from the switch to fee-based services, it’s the personal planning angle - and the ability to convey to clients that you’re completely in touch with their own personal aims and requirements - that will probably make the critical difference in retaining their loyalty and stop them from disappearing off to the execution-only websites.

Not that retaining a long-standing customer base is a particular priority for Brunel. The partnership was only formed last September by Damien Rylett, formerly at Chartwell Private Client and Broadoak Group, whose key idea was to tear up the conventional IFA ideas about combining investment expertise with planning acuity, but to outsource the investment aspect from the start.

The DFM outsourcing idea isn’t new, of course. Brewin Dolphin, Quilter, Brooks Macdonald or Investec Wealth & Investment have all been providing these kinds of services to advisers for many years. But the challenge for Rylett was to fi nd a manager which could supply

a fully tailored solution, rather than simply proposing a range of off-the-peg packages.

“JM Finn were the fi rst fi rm we spoke to who told us, you tell us what you’d like us to do, and you tell us your principles and your philosophy, and we’ll build around those,” says Rylett. “As distinct from ‘here’s what we do, here’s our range of off-the-shelf portfolios, take it or leave it’. And yes, Finn told us that they were happy to talk to a small number

THAT SUIT IS BEST THAT BEST SUITS METAILORED INVESTMENT OUTSOURCING TO A DFM CAN BE A FAST AND COST-EFFECTIVE SOLUTION FOR ADVISERS. IFA MAGAZINE TALKS TO DAMIEN RYLETT FROM BRUNEL CAPITAL PARTNERS



“Simplicity, transparency and

liquidity are our mantras”

Damien Rylett, MD, Brunel

Capital Partners

Case Study - Brunel.indd 38 29/05/2012 23:35

of fi rms like us, even though they realised it wasn’t a hugely scalable approach. But as it happened, they had neatly anticipated the way that the FSA was going to send the market. [by prompting a wave of outsourcing interest]”

Bespoke Tailoring at Budget PricesThe deal with JM Finn, which fi nally got under way in April, is that Brunel supplies Finn with its asset allocation requirements for each customer, based on results obtained from their risk profi ling and planning process - together with the types of assets it wants included. And that Finn will then populate the client’s portfolio based on its own tailored research, using the Ascentric Wrap.

If that sounds expensive, it probably would have been if it weren’t for two basic provisions which Brunel fi rmly insists on. “Firstly,” says Rylett, “we stipulate that the portfolio should consist only of simple asset classes – equities, bonds, cash, property or commodities.” So there are no complex products, no hedge funds, no derivatives, absolute return funds, no multiple fee layers, and above all no need to keep swapping and chopping in line with the shifting tide of the markets.

The second priority, which will seem pretty radical to many advisers, is that the portfolios are only rebalanced once a year on their twelve month anniversaries - barring signifi cant developments, of course, such as a manager leaving a fund, or if they fi nd an index fund that’s cheaper. Finn have absolutely clear instructions not to be tactical or to change the asset allocation.“We believe in modern portfolio theory and the effi cient market hypothesis. Most of your return is driven by the mix of assets, and there’s no value to be had by trying to time markets.”

The upshot of this emphasis on continuity, says Rylett, is that Finn’s charges can be kept at signifi cantly lower rates than many alternative providers could manage. “And all of this means we can come in at much lower fi nal costs to the client,” says Rylett. “Everybody gains.”

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Brunel Capital PartnersBroad Quay House, Prince Street, Broad Quay,Bristol BS1 4DJ

Phone: 0117 9758691

Enquiries: info@brunelcapital partners.com

www.brunelcapital partners.com


Case Study - Brunel.indd 39 29/05/2012 23:35

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JOHN GREENWOOD, CEO OF CREECHURCH CAPITAL, ASSURES US THE OUTLOOK IS DECEPTIVELY DELICIOUSWith interest rates at an historic low - and likely to stay at these levels for the foreseeable future - investors are increasingly looking at different options to generate yield. And the search is most acute within pension portfolios, where the ability to generate new capital is often constrained. Faced with such a challenge, there’s a temptation to seek alternative routes. But the answer could actually be very simple - and what’s more, it’s available from more traditional sources.

The Political Background Last year the news stories were dominated by a natural disaster in Japan, political change as a result of the Arab Spring and the ongoing economic debt issues in the US and Europe – all of which provided a powerful backdrop to volatile fi nancial markets. Whereas 2012 has been confronted by the three ugly sisters – the eurozone crisis, the US debt ceiling and China’s hard/soft landing.

The EurozoneWith an ongoing question mark around the fate of the Euro and the current Greek debacle, it’s easy to get caught up in the emotion of the situation. However, if investors take a step back, they will see the long term evolution of Europe from a collection of independent countries to an economic bloc dominated and controlled by Germany.

This transition comes with a risk attached, because Germany must allow the situation to worsen so as to gain concessions, as debtor countries cry out for fi nancial handouts. Meanwhile, Germany is growing stronger by the day and is suffi ciently disciplined to play the long game. Palatable or not, Europe will be a stronger economic bloc with Germany at its head in the long term.

“It’s easy to get caught up in the emotion of the situation”warns Creechurch Capital CEO, John Greenwood



The US ElectionsThe US elections are helping to mask the continuing debt

spiral – something that is proving a success at the moment. But as soon as the elections are over, the debt debate will be reignited. (See also Monica Woodley’s feature on Page 22.) Remember, it was the US that triggered market jitters in 2011 by playing the political game rather than looking at the impact on the real economy. It’s always a dangerous tactic when minor politicians get a taste for being in front of the cameras!

China China really does pose a conundrum. It’s far too complex to accurately predict, but in reality its infl uence will be far more powerful than the Greek situation. On balance, it’s likely that China will surprise us in a negative way in the coming years.

Overall, the markets are diffi cult - but then, there’s nothing new there. However, volatility can actually provide opportunities. Ever since the stock markets began, there have been highs and lows. The only thing that’s undisputable is that it’s all about playing the long game.

Playing the Long Game The 25 years-plus trend has seen gilt yields falling. This has been on the back of lower interest rates and infl ation – plus the fl ight to safety. On the charts, there has been a critical crossing of gilt yields below equity dividend yields. This is a major signal, as for the fi rst time in over 25 years investors are getting paid more income by investing in UK equities than UK gilts.

It’s inevitable that this will arrive at some point in the future. The 115 year history shows four bull and four bear markets. We’ve had 12 years of disappointing equity returns now - but now that we’re moving closer to a change in sentiment, we will undoubtedly see this improve. What’s more, corporate earnings are growing in the current environment, despite the fi nancial pressures being felt by governments and individuals.

Another factor to consider is that central bank policy is devaluing cash. This will ultimately be infl ationary, and it will reward investors in real assets such as equities. Equities are also attractive, because

the investor receives a higher yield than gilts or cash while they’re waiting – so removing the income ‘cost’ of equity investment. Incidentally, it’s worth considering that gilts are far from a risk free investment –the only guarantee from current yields is that of ‘locking in’ disappointing real returns.

It’s also worth remembering that a portfolio requires diversifi cation - and that this can also be achieved with corporate bonds. Unlike gilts, the corporate sector still offers value to fi xed interest investors, with income yields currently above

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With interest rates at an historic

low investors are increasingly fi shing

for different ways to generate yield

■ Interest rates to remain at historical low

■ Gilt yields artifi cially low

■ Central bank policies devaluing money

■ There are more opportunities than capital available

■ Corporate bond yields offer attractive, risk adjusted, returns versus cash

■ Equity markets moving towards another prolonged period of growth

■ Equity dividend yields are attractive and well supported.




the psychologically important 5% level for investment grade and even more for sub-investment grade bonds. With default rates running at low levels, and with the aforementioned strong corporate balance sheets, the allocation to corporate bonds provides capital stability and strong cash fl ows – an ideal combination for diversifying an equity allocation.

Fear is a strong emotion, and too many investors shy away from opportunities such as these because they’re looking at historic performance rather than the

current facts. By understanding the facts, investors can ensure they receive the correct reward for the risks that they’re taking.

Rounding It All Up Pensions in particular need cash fl ows to meet liabilities and enable them to grow. The reality is that there are more opportunities in the world today than capital to invest in them. As a result, risk returns remain at an attractive level.

With the current state of interest rates, together with gilt yields being artifi cially low, ccorporate bonds and equities can provide attractive cash fl ows to meet an investor’s requirements. In addition, equities

provide protection against the inevitable market change that will arrive in the future.

The clear message here is that successful investment

will always take a long term approach and with the re-emergence

of extreme value in mainstream equity and corporate debt markets,

now is the time to keep it simple!


www.IFAmagazine.com

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This advertisement is directed at investment professionals in the UK only and should not be distributed to, or relied upon by retail investors. It is designed only for use by, and is directed only at persons resident in the UK. Charges exclude purchase and redemption fees where applicable. 0.15% is the AMC for the Vanguard FTSE UK Equity Index Fund and excludes 0.5% SDRT charge. Vanguard Asset Management, Limited only gives information on products and services and does not give investment advice based on individual circumstances. The value of investments, and the income from them, may fall or rise and investors may get back less than they invested. Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Services Authority. © 2012 Vanguard Asset Management, Limited. All rights reserved. UK10/0430/0711

Because we pay all running costs out of our Annual Management Charge (AMC), we expect our Total Expense Ratio (TER) to be the same as our AMC.

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THREE LIONSRight, that’s the home football season over, so now let’s get on with the Euros. The summer’s shaping up nicely on the soccer front, I think, and 2012 is turning into one of the all-time great years. It also happens to be the year of the London Olympics, which thankfully also features a football tournament, so I’m pretty much in my element right now, all things considered.

In fact I suppose I’m more in my element than ever, because 2012 is also a big year on the pension front - the only subject I’m more interested in than football. This year, as you’ll doubtless know, is the year when our new pension reforms come in and we enter the age of auto-enrolment. That’s big - big enough for one year, anyway.

At least, that’s what I thought until we got to hear the Queen’s Speech the other week. As if my year wasn’t already full of momentous events, that speech contained three big new changes to pensions! I know, I was pretty much speechless. I mean, how good’s that?

Three More in the Second Half One of the three big extra pension changes is that the whole issue of public sector pension reform is going to be addressed. Basically, the Government is looking to make the public sector pension system sustainable, with costs shared ‘more fairly’ between employers, workers and taxpayers. This is obviously something we’re going to hear quite a bit about as the details start to emerge.

The second big change is that the state pension system is being completely overhauled, and that new pensioners in the future will receive a higher fl at-rate pension aimed at providing a subsistence level of income. That’s something that I and many

THREE IS THE MAGIC NUMBER, SAYS STEVE BEE

Steve Bee, a well-known campaigning pensions activist, is the managing pensions partner at Paradigm and the co-founder ofwww.jargonfree pensions.co.uk

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others have been demanding for years now, and it’s something I really didn’t think would ever happen. (Like England winning the World Cup again, that sort of thing...)

I am very pleased that the Government is now committed to ending the system of means-tested handouts to elderly people and replacing it instead with a higher pension. The old means-tested system had the crazy knock-on effect of acting as a disincentive to saving for millions at work. After all, people said, why bother saving if you stand to lose 40% of the value of your savings if you don’t get a good enough state pension? But thankfully that’s a decision that the 13 million people about to be auto-enrolled into pension saving will now not have to make. At last, we have a level playing fi eld for pension savers.

Extra TimeThe third big pensions change is that the Government is going to look at ways to increase the state pension age in future, in line with increases in longevity. So, as we live longer and longer, the idea is the pension age will go up and up to allow for it. That’s pretty mega too - and what it means is that those saving for a pension in future will not always know with certainty quite when they will qualify for their state pension.

The weird outcome of all this, of course, is that we’ll get a level playing fi eld at last for

pensions - but that, at the same time, the retirement

goalposts will keep moving.

It’s a funny game, pensions. Even Gazza would have struggled with that...



Steve Bee.indd 44 30/05/2012 00:03

TRANSPARENCY, EFFICIENCY, LIQUIDITYTHE LYXOR ETF CHARTER

The Lyxor ETF charter is a commitment to the highest quality standards for its cl ients. Across Asset Management, Index Tracking, Transparency, Counterparty Risk, Primary and Secondary Market Liquidity,

Lyxor aims to provide best-in-class services to its customers.

Discover the full charter on www.lyxoretf.co.uk/lyxoretfcharter

* Source: Bloomberg, Lyxor. Trading volume for September 2011, all other data as of end of September 2011. The products described within this document are not suitable for everyone. Investors’ capital is at risk. Investors should not deal in these products unless they understand their nature and the extent of their exposure to risk. The index tracked by a Lyxor ETF may be volatile. Prior to any investment, investors should make their own appraisal of the risks from a financial, legal and tax perspective, without relying exclusively on the information provided by us. We recommend that you consult your own independent professional advisers. Lyxor and Lyxor ETF are names used by Societe Generale to promote the products of Lyxor Asset Management. Societe Generale is a French credit institution (bank) authorised by the Autorité de Contrôle Prudentiel (the French Prudential Control Authority). Societe Generale is subject to limited regulation by the Financial Services Authority in the UK. Details of the extent of our regulation by the Financial Services Authority are available from us on request. Lyxor ETFs are open-ended mutual investment funds established under French Law or Luxembourg Law. The funds may not be sold to US persons or in jurisdictions where such offering or sale has not been authorised. The telephone number and e-mail address are provided by the London Branch of Societe Generale for technical questions relating to Lyxor Asset Management products only. Calls to this line and other Societe Generale telephone numbers may be recorded. For further details please visit www.lyxoretf.co.uk

OUR COMMITMENT TO CLIENTS

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− Asset Management quality: direct ownership of physical assets, no securities lending; application of best execution principles to derivatives transactions.

− Index Tracking: direct index tracking. Tracking error published in monthly client reports and aims to be below 100 bps.

− Transparency: daily web publication of key information: directly owned securities, collateral, counterparty risk, counterparties to all derivatives entered into by Lyxor ETF.

ETF Risks: the index tracked by a Lyxor ETF may be volatile, investor’s capital is at risk and an investor may get back an amount less than originally invested.

− Zero counterparty risk target: daily target reduction of counterparty risk to zero.

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C51298_IFA Magazine 297x210.indd 1 01/12/2011 11:55Steve Bee.indd 45 30/05/2012 00:03

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What Drives the Prices of Strategic Metals?

Like all natural resources these days, rare strategic and industrial

metals are in diminishing supply. Growth in the world’s developing

and newly industrialised economies means that demand is high, causing

metal prices to increase. Countries such as Brazil, Russia, India and China are

consuming massive amounts of rare industrial and technical metals – with the consequence

that their value is rising. And developed industrial powerhouses like the USA,

Japan, Germany, and Korea also need ever-increasing amounts of these scarce minerals.. Many of the metals are mined exclusively in China, whose rare and strategic industrial metal exports are not meeting current global demand.

Increasing DemandWhere does the demand come from? Let’s consider the example of the

mobile phone, something we all take for granted. A single device contains

around 14 different metal elements. There are currently 5.9 billion mobile subscribers worldwide – and that’s 87% of the world population, by the way, and a 490% increase from the 1 billion subscribers

recorded in 2002). Not surprisingly, mobile growth is led by China and India,

which now account for over 30% of world subscribers (Source – Mobithinking.com)

Touch screen technologies such as iPads, iPods, iPhones or satellite navigation systems all require indium; indeed, they may soon need more of it. A recent breakthrough in monitor technology involves the use of indium gallium zinc oxide (IGZO) to prime larger monitors for even higher resolutions. IGZO allows smaller transistors and circuit elements, thus allowing more light through to give a thinner, more power effi cient display.

RARE, PRECIOUS - AND PROFITABLESTRATEGIC METALS CAN OFFER AN INTRIGUING ALTERNATIVE TO TRADITIONAL INVESTMENTS LIKE BULLION. HELEN CLAGUE, MANAGING DIRECTOR OF SCHWEIZERISCHE METALLHANDELSGESELLSCHAFT (UK), EXPLAINSAll things considered, it isn’t very surprising that gold is still being tipped in many quarters as a solid investment in these troubled times. Throughout recorded history - and indeed, prehistory before that – the yellow metal has been prized as a ‘safe haven’ asset that will endure and perhaps appreciate when all else is falling apart. It’s estimated that around 95% of all the gold ever mined is still in existence today.

Increasingly, though, sophisticated investors are now turning to rare and so-called strategic metal assets, which provide a new opportunity for wealth protection and perhaps a solid prospect of capital gain.

What do we mean by rare and strategic metals? We’re talking about elements such as bismuth, chromium, cobalt, gallium, hafnium, indium, molybdenum, tantalum, tellurium, tungsten and zirconium – all of which are becoming basic necessities for the world’s more modern industries. From high-tech aircraft electronics, aerospace industry, storage media, medical diagnostic imaging techniques to less obvious applications in paint and pharmaceuticals, these metals are everywhere in modern everyday life.

They originate in high concentrations in the earth’s crust, with pockets occurring only in certain parts of the world. But they are diffi cult and costly to extract. Like silver, which is also used extensively in various industries, the great majority of these metals are consumed rather than being stored like gold. That’s a critical difference, because demand is constantly renewing itself.



Every modern computer chip needs hafnium - to the extent that Silicon Valley, a term coined in the 1970s is now becoming known as Hafnium Valley. Intel, the world’s leading chip manufacturer, uses hafnium in its chips because it allows the transistors to be even thinner. The transistor walls are stronger and leak less electricity thus making them smaller more energy-effi cient, so computers ccan become faster. These new chips use transistors so small that 30 million will fi t on the head of a pin. Smart phones will soon be using these hafnium chips to support our ‘Internet On The Go’ culture. And gallium, another rare metal, is essential to the power supplies of satellites.

In short, no future technology is conceivable without these sought-after strategic metals, which are often irretrievably integrated into consumer goods and high tech products and therefore cannot be recycled. That’s an important point. As the Federal Institute for Geosciences and Natural Resources recently commented: “As the trend toward miniaturisation continues so the need for rare metals increases to hundreds of tons per year.“

The China SyndromeAs technology becomes more integrated into our daily lives, demand for these resources inevitably continues to increase. But this is creating a geopolitical supply squeeze which delivers a whole new dynamic to the price factor.

The global market requirement for strategic metals is currently expected to reach 200,000 tonnes by 2014, but China’s own requirements are forecast to exceed supply by 2012. The issue here is that more than 95% of the global supply of rare earth metals is produced by China itself. We are already seeing the consequences: export quotas are being slashed to meet the country’s own industrial needs. The total quota of rare earth exports granted by the Chinese Ministry of Commerce dropped by 65 % year-on-year in the fi rst three quarters of 2011, to just 12,000 tons,.

Why does China dominate strategic metal mining? The answer is largely due to its lax environmental policies. Mining inevitably causes pollution and environmental concerns which, in western countries, would make mining these resources a very much more costly proposition even if the deposits existed. There are alternatives, certainly: Japanese researchers and explorers have recently found a huge deposit of rare earth reserves

in the muddy fl oor of the Pacifi c Ocean, but sadly the technology to exploit these deposits has yet to be developed. The Wall Street Journal recently quoted an offi cial from a Japanese rare-metal trading house as saying that commercialisation could take up to 20 years. Substitutes are inferior or unknown.

As you’d expect, new mining operations around the world are rushing to try and contribute to the global supply of rare strategic and technical metals. But even so, if and when start-up mines ever do come on line, it is likely that they will unable to meet an exponentially growing demand. This supply and demand scenario will ensure that the metals will continue to increase in value.

The Green IssueRare and strategic metals are ‘enablers’ of sustainable energy initiatives, with wind turbines and solar energy products being key users of strategic metal resources. The creation of permanent magnets, a key component in so many green technologies, is a vital contributor to making the new generation of wind turbines more effi cient and reliable. Andmany of the new hybrid and electric car batteries contain rare earth metals, using up to 25 pounds of these precious metals in their advanced electric motors in order to increase effi ciency.

Strategic metals are environmentally friendly, reducing CO2 levels. And, as governments support renewable energy initiatives and impose further energy effi ciency measures, renewable energy will be a major driver of new demand.

The Advantage of Physical Metal Assets Investing into mining stocks has always been risky, especially where reserve quantities are uncertain or where mining production has not yet begun. Political issues, disputes and rough behaviour from speculators have always clouded the prospects. But direct investment into strategic metals has not been available to the retail market before, because the minimum quantity available was a metric tonne, a dauntingly large investment.

However, an alternative is available. Physical ownership of strategic metals is now available in the retail space and is one of the best ways to preserve wealth and provide offshore asset protection from infl ation and currency devaluation.

STRA

TEGIC

META

LS RARE, PRECIOUS - AND PROFITABLE


The Sippcentre platform offers you the pricing benefi ts of a funds platform combined with the range of investments of a wrap platform. This allows you to tailor the investment strategy to match your clients’ individual needs whilst fulfi lling their fi nancial goals.

ü More than 3,000 core funds ofwhich 2,850 have no initial,dealing or switch charges.

ü Access to an additional 3,000 funds, UK and overseas shares, gilts, ETFs & ETCs.

ü Easy to use online functionality.

ü SIPP, ISA and Dealing Account available.

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27654_sippcentre_210x297.indd 1 20/1/12 13:01:42Product Reviews.indd 48 30/05/2012 00:07

STAY SHARPP

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SFED UP WITH CLOSE SHAVES? NICK SUDBURY HAS SOME IDEAS FOR INVESTORS IN A LATHER

Ruffer Investment Company Yes, it’s been a rough old year for the euro zone, and right now it looks as though the risk of an unravelling fi nancial pact has put everybody on their guard for the foreseeable future. Yet funds that put capital preservation at the heart of their investment process should still be able to limit the potential loss from a crisis of confi dence like we’re seeing at present.

One fi rm that applies this approach to all of its products is the Ruffer Limited Liability Partnership. The group’s abiding aim is to make consistent returns for its clients and not to lose money, while still striking the right balance between risk and reward. And the Ruffer Investment Company (RICA), a closed-ended fund that trades on the LSE, is a particularly good example of the genre

RICA is currently the top performer in the global growth sector, with an impressive return of 90.7% over 5 years, and it has preserved capital far better than most in the last 12 months. Its objective is to achieve a positive total annual return, after all expenses, of at least twice the Bank of England Bank Rate. This refl ects the fi rm’s view that cash is the

true benchmark, because it involves no risk.

The fund’s managers have the freedom to invest in UK and international shares as well as in government and corporate bonds. They have taken advantage of the mandate to put together a highly unusual portfolio, with the largest weighting being the 31% allocated to different types of index linked securities. This refl ects their view that the various policy responses will eventually lead to higher infl ation.

The next most signifi cant holding is the 23% in Japanese equities, which the fi rm believes

are severely undervalued. This is an unusual and contentious decision that embodies RICA’s idiosyncratic investment approach - with most of the rest of the fund being held in UK and US shares.

RICA has a concentrated portfolio of only 54 stocks and 8 bonds, with a total value of £273.5m. It has an excellent track record with annual increases in the NAV over the last 5 years to the end of March of 14.1%, 9.4%, 29.6%, 8.7% and 3.9% respectively. The consistent performance has resulted in a high demand for the shares which currently trade at a 3.1% premium to the net asset value.

Ruffer Investment Company has served investors well and has acquired a cult following amongst those in the City. Its ability to deliver consistent returns despite the high market volatility makes it an ideal core portfolio holding during diffi cult periods.

FUND FACTSName: Ruffer Investment Company (RICA)

Type: Investment Co.

Sector: Global Growth

Market Cap: £273.5m

Launch: July 2004

Yield: 1.57%

Manager: Ruffer LLP

TER: 1.2%

Website: ruffer.co.uk

Taking the Rough with the Smooth

Ruffer Investment Company has served investors well and has acquired a cult following amongst those in the City

The Sippcentre platform offers you the pricing benefi ts of a funds platform combined with the range of investments of a wrap platform. This allows you to tailor the investment strategy to match your clients’ individual needs whilst fulfi lling their fi nancial goals.

ü More than 3,000 core funds ofwhich 2,850 have no initial,dealing or switch charges.

ü Access to an additional 3,000 funds, UK and overseas shares, gilts, ETFs & ETCs.

ü Easy to use online functionality.

ü SIPP, ISA and Dealing Account available.

Award winning service at an affordable price, our focus on keeping charges low means that your clients’ money is working harder for them.

Big oninvestmentchoice...

Low oncharges...

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Life & Pensions Provider BEST COMPREHENSIVESIPP PROVIDERSippcentre

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This advertisement is intended for professional fi nancial advisers only and is not for consumer use. Sippcentre is a division of A J Bell Management Limited, part of A J Bell.A J Bell Management Limited is authorised and regulated by the Financial Services Authority. A J Bell Securities is the plan manager of all of A J Bell’s Individual Savings Accounts (ISAs) and provider of A J Bell’s Dealing Account.

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For full details or to register, visit

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This allows you to tailor the investment strategy

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The value of investments can go down as well as up and you may not get back your original investment.

27654_sippcentre_210x297.indd 1 20/1/12 13:01:42


Product Reviews.indd 49 30/05/2012 00:07

Invesco Perpetual Income A fund that mainly invests in the UK stock market would not be expected to protect investors’ capital as effectively as one with a more fl exible mandate, unless the manager can successfully foresee the likely course of events. But this is certainly one area where the legendary Neil Woodford can boast a better record than most.

Back in March, it was Woodford who warned against the wave of warm fuzzy optimism that was then sweeping the markets. And ahead of the recent sell-off he said that global growth was likely to remain sluggish, and that the recovery from the 2008 fi nancial crisis might still be some way off. Alas, the subsequent re-emergence of the problems in Greece suggests that he could well be right.

Woodford’s Invesco Perpetual Income fund has built up an amazing track record, with a 10 year return to the end of March of almost 123%. This has enabled it to attract more than £9bn in assets under management - but that doesn’t seem to have hindered Woodford’s ability to add value.

The fund aims to achieve a reasonable level of income, together with capital

growth. It mainly invests in companies listed in the UK, with the balance held overseas. By the end of March the 114 stock portfolio had an historic yield of 3.72%.

Woodford believes that there are certain types of companies than can thrive in the current environment, primarily those that can deliver sustainable dividends and earnings growth. Pharmaceuticals

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One of the safest ways for worried clients to remain immune to the uncertainties of a volatile international situation

are a prime example, with GlaxoSmithKline, AstraZeneca and Roche all among his top 10 holdings. Tobacco stocks are also well represented, as are telecoms like Vodafone and BT.

Invesco Perpetual Income is different to most UK Equity Income funds in that it currently has a much lower weighting in utility companies (8%) than you might expect. This follows a decision by Woodford to slash his exposure, on account of the problems that he sees arising in the sector.

There have been times when the star manager’s individualistic approach causes him to lag behind the peer group - as was the case during the last three years, when he returned “only” 58% compared to the average increase in the sector of 63%. But over the last twelve months his defensive positioning has come good. His return of 11% dwarfs the average 2% result achieved by comparable funds. All of which makes Invesco Perpetual Income one of the safest ways for worried clients to remain immune to the uncertainties of a volatile international situation.

FUND FACTSName: Invesco Perpetual Income

Type: UK OEIC

Sector: UK Equity Income

Fund Size: £9,035m

Launch: J une 1979

Portfolio Yeild: 3.72%

Charges: Initial: 5% Annual: 1.5%

Manager: Invesco Perpetual

Website: invescoperpetual.co.uk

A Defensive Mindset




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Each trader’s contribution to the overall profi t or loss is closely monitored, with losses cut early and profi ts allowed to run

BH Macro One obvious way for clients to benefi t from the current turmoil in the euro zone is to invest in a hedge fund. Because these use different short-term trading strategies to make money from the volatility, they do not depend on a rising market to produce positive returns.

BH Macro is one option that gets round the problems of accessibility and lack of transparency that normally bedevils the hedge fund sector. It’s a closed-ended investment company, registered and incorporated in Guernsey but listed on the LSE, which invests all of its assets directly into the Brevan Howard Master Fund.

Brevan Howard is a large, diversifi ed hedge fund worth around $25bn that is listed in the Cayman Islands. Launched in April 2003, it uses a combination of global macro and relative value trading strategies, mainly in credit, interest rates and FX markets. The fund also has long positions in volatility measures that are designed to offer protection against sharp movements in the markets.

The hedge fund uses a range of trading strategies with attractive risk/return profi les to take advantage of expected events in particular markets. Each trader’s contribution to the overall profi t or loss is closely monitored, with losses cut early and profi ts allowed to run.

BH Macro’s board of directors is independent of the Brevan Howard Group and is responsible for safeguarding the interests of shareholders. The directors keep in close contact with the investment team and have extended discussions with them during each of their quarterly board meetings. This enables them to evaluate whether the risk management is being maintained to a high standard.

The BH Macro feeder fund launched in March 2007, and in the 5 calendar years since then has returned: 20.67%, 23.25%, 18%, 1.03%

and 12.34%. That’s pretty impressive,

especially when you take into account

that the FTSE was trading

above 6300 when it fi rst came to the market and is now substantially lower.

The beauty of this sort of hedge fund is that it provides an uncorrelated exposure that can increase in value even when the market falls. During the 61 months to the end of March 2012 the underlying NAV was up in 46 of them and down in only 15. This makes it a great diversifying holding for more sophisticated clients.

Hedge your Bets

FUND FACTSName: BH Macro Ltd GBP shares (BHMG)

Type: Investment Co.

Sector: Hedge funds

Fund Size: £825m

Launch: M arch 2007

Portfolio Yeild: 0%

Manager: Brevan Howard

TER: n/a

Website: bhmacro.com



ETFS Short EUR Long USDIf the turmoil surrounding the euro zone continues, it seems reasonable to assume that one of the likely benefi ciaries will be the US dollar-euro exchange rate. And, for sophisticated clients with an appropriate risk tolerance, one way to play this trend would be to buy into the ETFS Short EUR Long USD Exchange Traded Currency (ETC).

This London listed ETC from ETF Securities is designed to track the USDEUR exchange rate, and it will refl ect the interest rate differentials between the two currencies. It is benchmarked against a total return index that refl ects the performance of a fully collateralised position in currency forward contracts that are then rolled over on a daily basis.

SEUP is structured as a debt security and is backed by currency transactions entered into

with Morgan Stanley & Co. The collateral is held in a separate custody account at

Bank of New York Mellon with daily mark to market payments keeping the

counterparty risk to a minimum. All exchange rates are

highly volatile, and USDEUR is no exception. Between its low in August and the high in

January, the ETC tracking it rose 22% mainly on account

of the signs of recovery in the American

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economy. It has since fallen back before spiking up again in response to the renewed possibility of Greece leaving the euro.

ETCs are very much a niche product, which explains why this particular vehicle only has assets under management of £109.9 million. Trading is quite light, with recent weekly turnover of a mere £551,000. The average trade size during this period was £10,800 and the bid-offer spread a reasonable 0.18%.

What’s the risk? Well, exchange rates are driven by a whole range of different factors, and as long as the Greek politicians deliberate over whether to stay in the single currency, it is the fate of the euro that will determine which way these particular markets move.

What we can say for sure is that the US dollar is still the ultimate safe haven at present, and that it would be sure to benefi t from any panicky mood in the euro zone. All of which makes ETFS Short EUR Long USD an interesting possibility for clients looking to make money out of the crisis. It is not as liquid as the underlying currency but it’s a lot easier to invest in and the trading costs are not unreasonable.

FUND FACTSName: ETFS Short EUR Long USD (SEUP)

Type: ETC

Exchange: London Stock Exchange

Sector: Currency

Fund Size: £109.9m

Launch: Nov 2009

Distribution yield: n/a

Manager: ETF Securities

Management Fee: 0.39%

Website: etfsecurities.com

The US dollar is still the ultimate safe haven at present, and would be sure to benefi t from any panicky mood in the euro zone

The Xafinity SIPP is a “full” SIPP product aimed at more sophisticated investors who

wish to maximise investment choice through all acceptable investment types.

This includes commercial property (where we specialise, with over 900 in

our SSAS and SIPP portfolio), unlisted shares and other investment types.

n £0 SIPP Set up fee

n Annual fee of 0.24% of SIPP assets held. Minimum annual fee of £162pa, maximum fee of £530pa

n Additional fees apply for establishment and administration of new investments eg commercial property

n No additional fees for VAT administration & borrowing administration on property/land

n Flexible & Capped Drawdown fees at £120 for set up and £11 per regular payment

n Exit fee applies only if member transfers all assets out of the Xafinity SIPP prior to benefit settlement.

Xafinity SIPP fee summary

Xafinity SIPP product features

n Unlimited number of investment types/products can be held

n Investments in Funds Ð choose from the whole of market Ð Platforms,

WRAPs, Fund Supermarkets, managed funds (including investment

trusts, unit trusts and OEICs)

n Commercial property & land investments

n Unlisted company share purchases Ð up to 70% of your clientÕ s SIPP

could be invested

n UCIS investments accepted, subject to technical review

n Joint / Family SIPPs available with shared fees for jointly owned assets

n Comprehensive retirement options available including

Flexible and Capped Drawdown

n On-line valuations available to members and IFAs

n Flexible IFA remuneration, paid monthly

Factsheet

Further information can be found at:

www.xafinitysipp.comXafinity SIPP Services Ltd is authorised and regulated by the Financial Services Authority, Scotia House, Castle Business Park, Stirling FK9 4TZ. Registered No SC69096. 932XSP(02/12)

For professional advisers only

200_Sipp_ad.indd 1 27/2/12 11:06:41




The Xafinity SIPP is a “full” SIPP product aimed at more sophisticated investors who

wish to maximise investment choice through all acceptable investment types.

This includes commercial property (where we specialise, with over 900 in

our SSAS and SIPP portfolio), unlisted shares and other investment types.

n £0 SIPP Set up fee

n Annual fee of 0.24% of SIPP assets held. Minimum annual fee of £162pa, maximum fee of £530pa

n Additional fees apply for establishment and administration of new investments eg commercial property

n No additional fees for VAT administration & borrowing administration on property/land

n Flexible & Capped Drawdown fees at £120 for set up and £11 per regular payment

n Exit fee applies only if member transfers all assets out of the Xafinity SIPP prior to benefit settlement.

Xafinity SIPP fee summary

Xafinity SIPP product features

n Unlimited number of investment types/products can be held

n Investments in Funds Ð choose from the whole of market Ð Platforms,

WRAPs, Fund Supermarkets, managed funds (including investment

trusts, unit trusts and OEICs)

n Commercial property & land investments

n Unlisted company share purchases Ð up to 70% of your clientÕ s SIPP

could be invested

n UCIS investments accepted, subject to technical review

n Joint / Family SIPPs available with shared fees for jointly owned assets

n Comprehensive retirement options available including

Flexible and Capped Drawdown

n On-line valuations available to members and IFAs

n Flexible IFA remuneration, paid monthly

Factsheet

Further information can be found at:

www.xafinitysipp.comXafinity SIPP Services Ltd is authorised and regulated by the Financial Services Authority, Scotia House, Castle Business Park, Stirling FK9 4TZ. Registered No SC69096. 932XSP(02/12)

For professional advisers only

200_Sipp_ad.indd 1 27/2/12 11:06:41Product Reviews.indd 53 30/05/2012 00:07

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

Transaction Reporting of Strategy TradesFinalised Guidance Ref: FG 12/1416th May 2012 7 pages This guidance follows on from a consultation in January 2012, and it applies to exchange traded strategy trades whereby two or more legs that are dependent on each other are executed simultaneously. The guidance applies only to transaction reports submitted to the FSA: other authorities may have different rules.

Essentially, the guidance is that all transactions that include the combined execution of multiple legs should be reported with each reportable leg logged as an individual transaction at the FSA. The new guidance will be effective from 15th August 2012.

Recovery and Resolution PlansFeedback Statement Ref: FS 12/110th May 2012 3 pages This Feedback Statement reports on developments from the Consultation Paper 11/16 (Recovery and Resolution Plans). Of interest to banks, building societies and investment fi rms.

The statement aims to provide fi rms with clarity regarding what they are expected to do during the interim period while fi nal rules are being adjusted to take into account developments in the international arena – most notably, in view of an expected proposal by the EU Commission for a forthcoming directive on recovery and resolution.

In the interim period, the FSA is publishing this feedback statement, along with draft ‘core’ rules and an updated information pack. Final rules will be published in the autumn.

The feedback statement is relevant to all UK incorporated deposit-takers and signifi cant UK investment fi rms with assets exceeding £15 billion. In addition, the FSA intends to consult at a later date, on applying RRP rules to the UK branches of non-EEA fi rms without UK subsidiaries.

Guidance on the Practice of ‘Payment for Order Flow’ Finalised Guidance Ref: FG12/1314th May 2012 13 pages The FSA takes the view that certain market makers make payments to brokers that direct order fl ow to the market maker – either as a direct payment per order or as another form of incentive. Thus, PFOF creates a confl ict of interest between the broker and its client, because the broker has an incentive to direct order fl ow to market makers offering PFOF arrangements over the interests of its clients.

This paper, therefore, sets out the FSA’’s view about payment for order fl ow (PFOF) arrangements. Essentially, it says, such payments can only take place where all three tests of the inducements rule are satisfi ed and both the best execution and confl icts of interest rules are complied with.

Consumer Redress Scheme in Respect of Unsuitable Advice to Invest in Arch Cru FundsConsultation Paper Ref: CP 12/930th April 2012 128 pages The FSA has concluded that some 15,000-20,000 clients who invested in relevant Arch cru funds received unsuitable advice and suffered losses as a result. Having reviewed sales fi les from various advisers, the regulator found that that there had been widespread mis-selling, and that a structure for consumer redress needs to be implemented.

The FSA proposes to establish a template allowing advisers to decide whether sales were in fact unsuitable, and to use an online calculator to determine any redress payable.Consultation period ends 31st July



FSA Publications.indd 54 30/05/2012 00:08

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Traded Life Policy Investments (TLPIs)Finalised Guidance Ref: FG 12/1225th April 2012 9 pages Interim guidance (rather than fi nal) in respect of product intervention Discussion Paper (DP11/1, November 2011).

The FSA takes the view that that Traded Life Policy Investments (TLPIs) should not reach the vast majority of retail clients, because of signifi cant problems with the way in which these high risk products are designed, marketed and sold to UK retail clients.

As part of its review of the rules relating to unregulated collective investment schemes, the FSA intends to consult on a ban of all marketing – including marketing delivered in the context of fi nancial advice – of TLPIs to the vast majority of retail clients. Final rules via consultation is likely to take time, hence the interim measure.

Changes to the Training and Competence (TC) SourcebookConsultation Paper Ref: CP12/824th April 2012 24 pages The FSA proposes to add three qualifi cations to the ‘appropriate qualifi cation tables’ in the Training and Competence (TC) sourcebook, and to amend the details for three qualifi cations on the ‘appropriate qualifi cation list’ in the Training and Competence sourcebook.Consultation period ended 31st May

Financial Promotions, Fund Performance and Image Advertising / Advertising ISAs & Adverts for Investment ProfessionalsFinalised Guidance Ref: FG12/1130th March 2012 9 pages Following on from the FSA’s consultation on promoting fi nancial products and services, this report goes through what fi rms should avoid and where more information can be found. It deals, among other issues, with image advertising and past performance for fund managers, and it gives information on the feedback received.

Pension Transfer Value Analysis AssumptionsPolicy Statement Ref: PS12/827th April 2012 29 pages Of interest to fi rms advising on pension transfers and employer sponsors of defi ned benefi ts schemes, employee benefi t consultancies and pension providers receiving transfer business.

This Policy Statement reports on the main issues arising from Consultation Paper 12/4 (Pension transfer value analysis assumptions) and publishes fi nal rules. Major points:• Rules for calculating mortality will be aligned

with those used for personal pension holders. • Annuities will be calculated without regard

to gender, as per the March 2011decision of the European Court of Justice.

• CPI-linked benefi ts will be valued using a CPI-linked annuity rate. This rate will be consistent with the CPI assumption determined for CPI in deferment.

• Explicit LPI-linked annuity rates are being introduced for valuing LPI pension increases.

• The annuity interest rate (AIR) will be reviewed more frequently, and a 12 month rolling average must be applied in between the standard reviews.

• The comparison provided to the member will be illustrated on growth rates that take into account the likely returns of the pension fund assets.

See also the Compliance Doctor article on Page 56.

Regulatory Prudent Valuation ReturnPolicy Statement Ref: PS12/727th April 2012 38 pages Of interest to banks, building societies and certain investment fi rms with sizeable fair value portfolios that fall within the scope of the new reporting requirements.

CP11/30 consulted on changes to the GENPRU and the SUP, with a view to creating a new reporting requirement to complete a regulatory return that will show, in a standardised format, the range of uncertainty that exists around the accounting fair values and the difference between those fair values and the regulatory prudent values. The new requirement comes into force in respect of

reporting periods that end on or after 30 June 2012.


FSA Publications.indd 55 30/05/2012 00:08

Lee Werrell, Managing Director of CEI Compliance Ltd, gives his personal round-up

Absolute Return Funds

In the Retail Conduct Risk Outlook (RCRO) 2011 (http://www.fsa.gov.uk/static/pubs/other/rcro12.pdf) , the FSA has noted that absolute return funds form part of a growing trend whereby asset managers were developing more complex investment strategies and promoting them to retail investors. The regulator’s latest RCRO paper says that consumers might not understand the complexities of absolute return funds, and that they might believe there is an element of capital protection, or even a guarantee of a positive return. It adds that complex strategies and structures used in absolute return funds “raise questions about their suitability for all types of retail investors”.

An Absolute Return Fund (ARF) is, in general, a fund that seeks to provide returns that are better that its peers, its fund category, or the market as a whole. This type of fund management is referred to as a ‘relative return’ approach to fund investing. As an investment vehicle, an absolute return fund seeks to make positive returns by employing investment management techniques that differ from traditional managed funds. ARFs are commonly referred to as a type of hedge fund.

Despite the success of some funds in delivering positive returns for investors, the FSA says that ARFs pose a potential retail risk. Consumers, it says, might not understand ARFs. They might believe there is an element of capital protection, or a guarantee of a positive return. And they may also suffer signifi cant unexpected fi nancial loss if they are sold funds that fail to perform.

The FSA is currently undertaking work to assess the extent of the risk posed by the funds. Fundweb’s Brian Tora stated in April 2012 that “certainly, the aim should be to offer a lower risk, less volatile environment to investors. The reality, though, is that a wide variation in performance is likely, while a lack of consistency among this group of funds is also evident.” (http://tinyurl.com/7enx27y)

Techniques Absolute return investment techniques include using complex tools and instruments, short selling (soon to be heavily restricted in the UK), futures, options, derivatives, arbitrage, leverage and unconventional assets such as:

■ Non-public REITs

■ Structured notes

■ Long-short funds

■ Managed futures

■ Long-short bond funds.

Marketing Issues Unfortunately, the FSA is concerned that many fi nancial advisers themselves do not understand how conventional derivatives work. The following are singled out as weak areas:■ Futures and options■ Derivatives (Credit Default Swaps/Baskets//

Interest Rate Options/ Exotics such as Monte-Carlo simulation, Asian options etc.)

■ Leveraging (borrowing to support investment)■ Arbitrage – (ultra high speed transaction

through to regular market inconsistencies)

Without a thorough knowledge of the above, and even without the more hedge fund specifi c unconventional assets, demonstrating suitability for a sale to a retail investor into these funds would be a challenge.

Suitability, Suitability, Suitability As with all sales, an IFA has to demonstrate the suitability of the product. Following COBS 9.2, when recommending an ARF you would need to demonstrate that the client has knowledge, understanding and experience of;

■ Non-public REITs

■ Structured notes

■ Long-short funds

■ Managed futures

■ Long-short bond funds.



Compliance Doctor.indd 56 30/05/2012 00:09

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PS 12/08 Pension Transfer Value Analysis Assumptions

On 27th April the FSA published the fi nal rules for Pension Transfer Value Analysis Assumptions and the feedback from CP 12/04 (www.fsa.gov.uk/static/pubs/policy/ps12-08.pdf).

These changes will be of interest to both regulated and non-regulated fi rms involved in pension transfer value analysis. In particular, fi nancial advisory fi rms advising on pension transfers and software providers specialising in pension transfer software for advisory fi rms will need to be aware of the revised rules and guidance.

The main changes introduced by the Policy Statement are as follows:

■ The rules for calculating mortality will be aligned with those used by the Board for Actuarial Standards. This will make them consistent with annual pension statements that all personal pension holders receive once a year.

■ Annuities will be calculated on a gender equal mortality rate, in line with the European Court of Justice’s decision in March 2011.

■ A Consumer Price Index (CPI) assumption will be introduced for re-valuing pensions in deferment, refl ecting legislative changes made by the government in 2011. We will consult on the CPI rate to be used in our consultation on projection rates.

■ CPI-linked benefi ts will be valued using a CPI-linked annuity rate. This rate will be consistent with the CPI assumption determined for CPI in deferment.

■ The new rules introduce explicit LPI-linked annuity rates to be used to value LPI pension increases (please refer to the policy statement for details on the new rules for this).

■ The annuity interest rate (AIR) will be reviewed more frequently. In addition to the standard review of the AIR on 6 April each year, the Policy Statement introduces a 12-month rolling average which must be applied in between the standard reviews.

■ The comparison provided to the member will be illustrated on growth rates that take into account the likely returns of the pension fund assets. The comparison will not need to take into account the transfer of risk from the DB scheme to the member, but guidance has been introduced which clarifi es the need for advisers to communicate these risks with members.

Impact: The changes clarify and update the assumptions and guidance a fi rm must use when it compares the benefi ts likely to be paid under a DB pension scheme with the benefi ts provided by a personal pension or stakeholder pension. If your fi rm is in any way involved in pension transfer value analysis, then you must be aware of the changes and apply them accordingly.

The New rules are effective from 1st May 2012.This means that elevant fi rms need to familiarise themselves with the changes and start applying them when carrying out pension transfer analysis immediately and from any cases calculated since 1st May.

Remember: If you have any concerns regarding these issues, please contact your compliance department or an independent consultant who is a member of the Association of Professional Compliance Consultants (APCC), recognised as a trade body by the FSA.

See also the listings of FSA publications on Page 54 of this issue

Suitability, Suitability, Suitability As with all sales, an IFA has to demonstrate the suitability of the product. Following COBS 9.2, when recommending an ARF you would need to demonstrate that the client has knowledge, understanding and experience of;

■ Equities (Including Short-selling)

■ Futures and options

■ Derivatives (CDS/Baskets/Exotics/IROs – Monte-Carlo simulation, Asian options etc)

■ Leveraging (borrowing to support investment)

■ Arbitrage – (ultra high speed transaction through to regular market inconsistencies)

■ Unconventional assets.

Potential FSA Hotspot To ensure suitability and compliance with COBS 9.2, the questions advisers need to ask are:

■ Can I satisfactorily state that the product - with the various elements that the managers can use as alternative strategies and investment options - is suitable to my client’s objectives and current situation?

■ How does this recommendation meet their investment objectives? Is it such that they are able fi nancially to bear any related investment risks consistent with their investment objective? And is it such that they have the necessary experience and knowledge in order to understand the risks involved in the transaction or in the management of the portfolio?


Compliance Doctor.indd 57 30/05/2012 00:09

.community spirit

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Join thousands of IFAs and Financial Planners who use IFA Life

to network, share best practice, debate industry issues, access

business resources and to provide help and support to one another.

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Email: [email protected]

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Banking.indd 33 28/09/2011 11:44Thinkers.indd 58 30/05/2012 00:16

THIN

KE

RS

Cyclical theory pioneerThe early Soviet Union didn’t produce many theorists with anything worthwhile to say about capitalism. Most simply scoffed that the internal contradictions of the profi t system would inevitably bring the West crashing down without even a push. But Kondratiev, a key fi gure in Lenin’s New Economic Policy team (1917), was later to fi nd himself a cult fi gure in the West, thanks to an introduction from Joseph Schumpeter.

Kondratiev was, of course, dead by then - having fallen out with Stalin and having spent a decade in the gulag before his eventual execution. But his rather crude Kondratiev Wave theory, which tries to explain the so-called ‘long wave’ behaviour of economies, still still gets a respectful nod from academia today.

So it was a half-baked idea to begin with?Give the man a chance. Back in 1917, hardly anybody had achieved anything much more than empirical observations of economic cycles. Keynes had yet to start work on his counter-cyclical ideas, and Ben Graham’s inclination was to suffer cyclical turns rather than try to second-guess them. There simply hadn’t been much data to go on.

Kondratieff’s theory said, essentially, that industrialised economies tend to move in 50 to 60 year ‘long waves’ of boom and depression, which are overlaid with shorter cycles – the most important drivers being the technology cycle and the shorter credit cycle. Predictably, the arcane ‘wheels within wheels’ nature of this cyclical system has a pseudo-technical appeal which still gets “supercycle” commodity buffs all sweaty today. Now, if only they could all agree on what stage of the various cycles we’re at, we’d be getting somewhere...

But we digress… As far as Kondratiev was concerned, the great mover behind cyclical behaviour was technological innovation. He parcelled up Britain’s experience in terms of the Industrial Revolution (peaking in 1771), the arrival of the railways (1829), the steel and heavy engineering boom (1875), and the arrival of big oil, cars and mass production (1908 onwards). More recently, his acolytes count the age of information and telecommunications (starting 1971) as the latest of these innovation waves. All quite nicely spaced, time-wise.

Kondratiev’s ideas about credit cycles are closer to our own standard perceptions – essentially, the boom-bust sequence of growth, over-supply, falling demand and slump, followed by eventual recovery and regeneration.

Sounds good It wasn’t. Kondratiev’s tidy British model (a fast-moving industrialised economy) was one thing, but the relatively agricultural French model or the feudal Japanese model were quite different - and America’s growing economy was always in a different cyclical place from everybody else. Kondratiev’s world picture became a cacophony of clocks running fast and slow, and it proved hopeless trying to assemble a coherent global view. Today’s globalised marketplace requires a more systematic predictive system, which is probably why Kondratiev fell out of favour.

Still a great way to start a fi ghtYou’ll still fi nd long wave fans explaining why the 1990s dotcom mania was an expression of Kondratiev’s prediction of a late “frenzy” stage, and why this always leads to speculative excesses before the cycle moves heavily downward. The 2007/8 banking crisis was inevitable, then. And bond yields? Kondratiev says they’re about to soar. Oh yes he does. Sorry chaps.

“Every new phase of the cycle is predetermined by factors of the preceding phase.”

WRONG TIMEWRONG PLACE

Nikolai Dmitriyevich Kondratiev Born March 1892 in Kostroma, near Moscow. Shot by Josef Stalin in September 1938

.community spirit

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to network, share best practice, debate industry issues, access

business resources and to provide help and support to one another.

Telephone: +44 (0)1483 548 666

Mobile and SMS/Text: +44 (0)7773 359 619

Email: [email protected]

Twitter Direct Message: IFALife

Banking.indd 33 28/09/2011 11:44


Thinkers.indd 59 30/05/2012 00:16

For further vacancies please visit:www.shortlistme.co.uk

ASPECT COURT, 47 PARK SQUARE EAST, LEEDS, LS1 2NL T: 0844 248 5292 E: [email protected]

WEALTH MANAGEMENT ADVISERSLondon, Essex, Home Counties & South East£45,000 plus excellent bonus and benefits O.T.E c£75,000Our client needs a number of experienced Wealth Advisers to offer acomprehensive service to a portfolio of HNW clients in the South East of England.The job role forms part of the wider Wealth Management Sales Team thereforeworking in close partnership with the introducers and peers in this team will bepart of any successful applicants’ day-to-day activity.

You will be responsible for achieving targets in meeting the demands of thebusiness by converting introductions into new business, conduct interviews withnew and existing clients to review and meet their immediate and on-going financialneeds; actively selling and/or introducing appropriate products and services andreferring to other product specialists where required.

Successful applicants will be fully diploma qualified. Ref: 2016

FEE BASED FINANCIAL PLANNING DIRECTORSouth Coast£70,000 plus bonus and benefitsOur Client a well respected firm of Chartered Accountants and Business advisersbased in the South East. They now require an experienced Chartered FinancialPlanning Director for its specialist Wealth Management division.

Successful applicants will be required to give advice on all aspects of financialplanning from pensions, Investments and annuities to inheritance tax planning andtrusts to a portfolio of clients

Qualified to Chartered status you will be given your own portfolio of clients rangingfrom private individuals to Charities and trusts and professional connections

The successful applicant will have experience of working within a Fee basedenvironment on a time/cost basis with HNW Clients. In return you will receive acompetitive remuneration package and a defined career path. Ref: 1999

PREMIER INDEPENDENT FINANCIAL ADVISER Manchester, Bristol & Londonc£45-£50,000 plus bonus and benefitsOur Client a leading Bancassurer need a number of Premier Independent FinancialAdvisor’s to provide professional independent financial planning services to bothnew and existing high value customers. This means identifying and meetingcustomer needs with particular emphasis on protection, pension, investment andinsurance products available through the bank’s UK branch network, whilstconsistently treating customers fairly. The role requires the candidates to bequalified to a minimum of Diploma level.

You will be responsible for working with a sophisticated customer base, providingspecialist advice on relevant financial products and services including full financialplanning reviews and portfolio management.

Optimising appointments with customers to identify needs and opportunities andprovide solutions in order to achieve personal and team sales targets. Ref: 2076

WEALTH MANAGERS London, South Coast, Norwich, Leeds£75,000 plus benefitsOur Client a National firm of Wealth Managers and Investment Advisers who giveFee based Independent financial advice to private clients need a number ofexceptional individuals to service and further develop their Client proposition,based out of one of their UK offices.

Ideally, you will be an experienced diploma qualified IFA already with a minimum offive years financial planning experience, covering all areas of Pensions &Investments and be familiar with operating a Wrap service. The successfulapplicant will be given on-going support and development to ensure they are givingtheir Clients the best advice.

In return the successful applicants will be given an excellent opportunity to developtheir career within this organization Ref: 1885

COMPLIANCE OFFICER Manchesterc£30,000Our client who provide a truly independent range of financial services frominvestment and portfolio management, through to trust and estate planning areurgently seeking a compliance officer, to carry out compliance reviews in accordancewith the risk based business quality monitoring programme.

Assess the quality of advice and adherence to business standards and regulatory FSArequirements and identify material risks to clients and the company

Occasional file review required to determine whether the suitability of advice againstbusiness standards and regulatory requirements and identify material risks.

To provide effective feedback and direction of the remedial action required to manageor mitigate the material risks identified.

Minimum 2 years experience of working in a regulated financial services environment

CF1-4 or equivalent Ref: 2053

WEALTH MANAGER Birmingham£40,000 plus bonus and benefitsOur Client a well respected firm of Asset Managers with a National network ofOffices who manage in excess of £10 billion of funds on behalf of Clients

They now require an experienced Financial Planner for its specialist WealthManagement division.

Successful applicants will be required to service a Wealthy portfolio of clientsranging from private individuals to Charities and trusts and professionalconnections You will be responsible for working with a sophisticated customerbase, providing specialist advice on relevant financial products and servicesincluding full financial planning reviews and portfolio management.

The successful applicant will have first hand knowledge of working within a Feebased environment on a time/cost basis with HNW Clients. In return you will receivea competitive remuneration package and a defined career path. Ref: 2077

EMPLOYEE BENEFITS CONSULTANTLondon & South£70,000 basic plus benefitsOur client is a successful and respected firm of Chartered Accountants andBusiness Advisors, with over 25 offices across the UK and worldwide. They arelooking to expand their UK Employee Benefits Consultancy service with theappointment of an experienced Employee Benefits / Corporate PensionsConsultant to their offices in the London office. Primarily based in London, workingalongside the existing teams you will be responsible for developing the businessthroughout other regions, you will be servicing clients of the organisation as well asdeveloping new business with large corporate clients.

You must be Diploma Level 4 qualified, with specialist pension’s qualifications, andbe experienced of developing and managing group pension schemes with c200 –2000+ employees. Typically you should be generating a minimum of £250,000 in Feerevenue per annum. Ref: 1396

EMPLOYEE BENEFITS CONSULTANT North West/North East£50,000 basic plus benefitsOur client is a successful and respected firm of Chartered Accountants andBusiness Advisors, with over 25 offices across the UK and worldwide. They arelooking to expand their UK Employee Benefits Consultancy service with theappointment of an experienced Employee Benefits / Corporate PensionsConsultant to their offices in their Manchester/Leeds office. Primarily based in theNorth West, working alongside the existing teams you will be responsible fordeveloping the business throughout the North East regions, you will be servicingclients of the organisation as well as developing new business with large corporateclients.

You must be Diploma Level 4 qualified, with specialist pension’s qualifications, andbe experienced of developing and managing group pension schemes with c200 –2000+ employees. Typically you should be generating a minimum of £250,000 in Feerevenue per annum. Ref: 2020

FINANCIAL PLANNING MANAGER Reading£50,000 basic plus benefits Our client is a successful and respected firm of Chartered Accountants andBusiness Advisors, with over 25 offices across the UK and worldwide. They arelooking to expand their UK Wealth Management service with the appointment of anexperienced Financial Planning Manager to their offices in Reading. You will beoffice based; working alongside the existing teams responsible for developing thebusiness throughout each specialist area and you will be servicing clients of theorganisation as well as developing new business with clients.

You must be a minimum Diploma Level 4 qualified, with specialist pension’squalifications, and be experienced of developing Time Cost; Fee based businesswith High Net Worth Clients. Typically you should be generating a minimum of£250,000 in Fee revenue per annum. Ref: 2078

CASE OFFICERS Bristol & Huddersfieldc£32,000 plus benefitsOur Client a well respected Financial Services group, require experiencedindividuals to research and resolve customer complaints within agreedcompensation limits and negotiate solutions to the satisfaction of all partiesconcerned ensuring requirements of external regulators and internal standards aremet.

Investigate customer records produced by the sales forces to ensure that the advicegiven is in line with standards laid down by the Group and Regulator.

Examine standards of remedial action undertaken as a result of reviews, whenappropriate, to ensure that customers have not been disadvantaged or the Groupput at risk.

To effectively identity, control and escalate any perceived risks which may impactcustomers or the group

Produce effective communications to internal and external customers in a clearand concise format, ensuring that any corrective action undertaken is appropriate.Ref: 2023

TRAINEE EMPLOYEE BENEFITS ADVISER Merseysidec£30,000 plus benefitsOur Client is an independent firm of actuaries and consultants who offer a full rangeof services to trustees, employers, insurance companies and individuals. They arenow looking to recruit a trainee adviser for their Liverpool office. The ideal candidatewill be responsible for supporting employee benefit consultants advising clients andwill require excellent written and oral communication skills to be effective in this role.

Some previous pensions experience is essential and attention to detail, coupled withthe ability to work well in a team environment.

In return on offer a competitive remuneration and study package. Study towardsprofessional qualifications (Diploma in Financial Planning) is an essentialrequirement and is necessary to progress to the role of an experienced Adviser. Ref:2079

EMPLOYEE BENEFITS ADMINISTRATOR Londonc£32,000 plus benefits A London based IFA is looking for a corporate administrator to work within theEmployee Benefits administration Support Team, responding to customerenquiries and carrying out administration tasks in support of the sales process.

Processing of group life & group pensions schemes, including checks to ensurethat documentation is correct.

Identification of possible new business leads from the existing client bankand liaison with the client and/or Employee Benefit adviser to maximise theopportunity.

Obtaining new business illustrations and policy valuations for adviserswhere required.

Typing of letters and reports, where required.

Ensure all administration is completed in an effective manner tomeet the firm’s record keeping and file qualityrequirements. CF1-4 or equivalent

Knowledge of 1st Software andExchange is preferred Ref: 1397



Thinkers.indd 60 30/05/2012 00:16

T

A low-cost, scalable outsourcing solution that integrates discretionary investment via wrap platform

● Integrate a long-established investment management company into your proposition

● Model portfolios built and managed to your philosophy and specification

● Fund selection process incorporates both the passive and active fund universe

● Your Firm retains the client relationship and custody of assets

● We will manage and rebalance the portfolios so you can focus on your clients

JM Finn & Co is one of the UK’s leading investment management companies with £5.9bn funds under management or administration (as at end 2011).

Contact [email protected] T 029 2055 8800

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

A low-cost, scalable outsourcing solution that integrates

Integrate a long-established investment management company into your propositionIntegrate a long-established investment management company into your proposition

Model portfolios built and managed to your philosophy and specificationModel portfolios built and managed to your philosophy and specification

Fund selection process incorporates both the passive and active fund universeFund selection process incorporates both the passive and active fund universe

We will manage and rebalance the portfolios so you can focus on your clients

JM Finn & Co is one of the UK’s leading investment management companies

Tailored Platform Solution

Senior Financial Planner - Gloucestershire

This is a fantastic opportunity for a highly skilled and experienced Financial Planner to workwithin a vastly reputable wealth management firm. No requirement for a transferrable clientbank as you will be capitalizing on internal business sources as well as developing a presencein the local area. This opportunity would suit a proactive and dynamic individual; preferablyat Chartered status. You must feel comfortable dealing with wealthy individuals and haveexperience in meeting their exacting demands.

Please contact Danielle at: [email protected] or on 01727 884 662

Basic to £70,000 plus benefits and bonuses

Please contact James at: [email protected] or on 01727 884 662

Senior Financial Planner - Investment Management firm, The City

Our client, a highly respected Investment Manager with a very established wealth planningdivision are currently looking to appoint a new Financial Planner to their London office.Working closely with the discretionary team, you will be responsible for offeringindependent, holistic advice to the firms existing client base, mainly consisting ofprivate clients with between £2-5 million. The ideal candidate will have exceptionalinterpersonal skills, HNW client exposure and be qualified to Chartered Status.

Basic to £80,000 plus benefits and bonuses

Ground Floor, Mayesbrook House, Lawnswood Business Park, Redvers Close,Leeds LS16 6QY Telephone: 0113 274 3000 Fax: 0113 274 3031

Sales Proposition Trainer - London Based/UK Travel

Are you an experienced Financial Services Sales Trainer? BWD Search & Selection are workingwith one of the UK’s leading Platform providers to recruit a ‘Sales Proposition Trainer’ in theSouth East. Candidates must be in easy reach of Central London and be able to demonstratesignificant experience in delivering training to support the Proposition and Sales Developmentteam. A highly competitive package is on offer, along with the opportunity to join a market-leading Financial Services organisation.

Please contact Adam at: [email protected] or on 0113 274 3000

Highly competitive package

Suite 4, Ground Floor, Breakspear Park, Hemel Hempstead, HP2 4TZTelephone: 01727 884 662 Fax: 0113 274 3031

www.bwd-search.co.uk

Regional Admin Manager - Accountancy Practice, East Midlands

Our Client is a top tier accountancy practice with a widely respected Wealth Management armwho seeks to appoint a Regional Administration Manager. The role is to provide managementand leadership to the local Administration Managers & support teams within each regionwhilst achieving the Group’s wider business targets and service standards. Knowledge ofmanaging support teams and experience within financial services is essential as well asexceptional communication and leadership qualities. This is a key hire and you will beexpected to travel to the Group’s regional network. A rare opportunity not to be missed.

Please contact Gary at: [email protected] or on 0113 274 3000

Basic to £35,000 plus benefits and bonus

Visit our website at

Employed Financial Planner - North West

This well established, reputable and profitable IFA firm is looking to recruit a QCF level 4financial planner as it looks to continue expansion plans into 2012. The business model isRDR ready and also provides full support in terms of admin and paraplanning. There will beadditional client allocation and leads provided as and when, as well as the opportunity to linkin with other areas of the business and account manage and take and develop lead provisionfrom them. A great opportunity to develop yourself, your client base and consequently yourearnings further.

Please contact James at: [email protected] or on 0113 274 3000

Basic to £50,000 plus car allowance, flexi benefits and bonus

Head of Corporate - Midlands

An employee benefit consultancy is seeking an experienced hire to grow the Midlands. Youmust have an EBC background with knowledge across Trust and Contract based pensions(DB and DC) and ideally Risk and Flexible benefits and be accustomed to working on a feebasis. Your technical knowledge must be strong. You must also have experience of building,managing and coaching a team of corporate consultants and exceeding revenue targets forboth new business and retaining existing clients. Level 4 is expected as a minimum whetherAPMI/ACII/DipPFS/FIA qualifications.

Please contact Zoe at: [email protected] or on 0113 274 3000

Excellent package including bonus


Thinkers.indd 61 30/05/2012 00:16

the financial services e-learning specialists

T 0845 850 9995 F 0113 274 3031 E [email protected]

Wanted: Quality financial advisers....Only those with Level 4 Qualifications need apply

More and more large groups are demanding that candidates have already achieved at least Level 4 qualification. In fact, many haven’t even picked upa book yet. Without large numbers of qualified advisers the FS sector has a difficult future to say the least.

The BWD Group, an established search & selection firm, have taken action to help with the launch of a new service - BWD development.

• Advisers and others taking the Level 4 exams can now access e-learning programmes and on-line mock exams. • This allows candidates to learn at their own pace - at a time and place to suit them• They can take on-line assessments along the way and take up to five mock exams to make sure they are on track to pass the live examination

If you like the sound of this, go to www.bwd-development.com where you can seea full demonstration of the service or call BWD development on 0845 850 9995

Get your skills up todate the easy way

magazine

magazine

magazine

N E W SN E W S R E V I E WR E V I E W

magazine

magazine

R E V I E W

magazine

magazine

C O M M E N TC O M M E N T A N A LY S I S

WE KNOW YOU’RE OUT THERE

HELLO!As IFA Magazine celebrates it’s fi rst anniversary, following intense interest and prolifi c growth, we have a need to expand our team.

To register your interest, please send cv in full confi dentiality to [email protected]

Senior Sales/ Ad Managerto manage/sell print and digital

advertising, event sponsorship and bespoke projects. Selling to

fi nance businesses, asset managers, agencies and related companies.

London based, you will be expected to develop existing contacts and represent the magazine. A great

opportunity for an established sales person to step up and benefi t from

business growth.

News Journalistto work alongside the Editor in

producing and co-ordinating fi nancial features and news for both the web

and print magazine.

Sales Executive selling a portfolio of advertising

and sponsorship solutions across print media, events and online for fast

growing company.

Events ManagerAs we develop our range of seminars, round tables and

IFA events, we are looking for an experienced events

and sales manager to join our senior team


Thinkers.indd 62 30/05/2012 00:16

For further information please contact Simon Charlton, Matthew Tatnell or Gareth Blades60 Lombard Street, London EC3V 9EA 0207 464 8429 [email protected] www.rolanddowell.com

Private Client IFA £60-80,000 + Bonus + Bene� ts Ref: 09393International insurance brokerage with a large UK presence has recently set up a wealth management o� ering to advise personal and corporate clients. � ey now require a senior individual to work in the City o� ce and develop referrals internally and advise wealthy individuals of SMEs/FTSE � rms that they have relationships with. You must have experience of internal business development and a proven record of producing both high quality and high levels of fee business.

Wealth ManagerTo £60-80,000 + Bonus + Bene� ts Ref: 3244Our client is one of the UK’s leading Investment Management � rms with c£10bn under management combined with a fantastic o� ering in the wealth management arena. As part of a continued expansion plan they now require a senior wealth manager in London to work with the IMs and advise wealthy individuals on all areas on a fee basis. You must have experience of working with professional introducers and a record of success in a similar arena.

Associate Director, Private Clients£70-90,000 + Bonus + Bene� ts Ref: 1303An excellent opportunity now exists for an accomplished Private Client IFA to work within this wealth management boutique and inherit a substantial client base comprising HNW/UHNW Private Clients. You should be a Chartered Financial Planner (or progression towards) and be able to o� er a background of providing fee advice to a wealthy client audience. Since you are servicing an existing portfolio you are not required to transfer any clients or funds to this role.

Professional Practice IFA£80-100,000 + Bonus + Bene� ts Ref: 2000An exceptional opportunity now exists within this medium sized Accountancy practice for a senior individual to work closely with the partners of the practice. You will ensure that a level of trust is maintained in order to refer business to you and provide high quality advice to the wealthy clients that are referred. You must have a strong sales record and ideally have experience of working with professional introducers. London based.

Wealth IFA Up to £60-85,000 + Bonus + Bene� ts Ref: 210104� is small National IFA has an excellent opportunity for 3 IFA’s to join their existing team of specialist consultants in London, Herts and Surrey. � e � rm o� ers holistic and niche � nancial planning advice to HNWIs and you will advise a captive client base currently being dealt with by specialist divisions but seeking wider generalist � nancial planning advice. � is is an exceptional opportunity with no need to bring any client bank. Chartered status preferred.

Executive Consultant Salary: to £75,000 + Bonus + Bene� ts Ref: 5323Private Bank with a hugely successful fee based � nancial services operation now requires an experienced consultant to work with retained clients and advise on all areas of employee counselling. Ideally, you should be currently carrying out a similar role at present and be familiar with pre/post retirement/redundancy counselling, mid-career � nancial planning and director/senior management advice. Experience of fee based work would be a distinct advantage. London based.

A N A LY S I Swww.IFAmagazine.com June 2012 63

Thinkers.indd 63 30/05/2012 00:16

Institute ofFinancial Planning

To find out more or join visit www.financialplanning.org.uk or contact us on 0117 9452470

Support you through regulatory change Engage with a community of professionals Follow a structured career path Increase your personal and business potential Harmonise your goals with those of your clients Keep up to date with relevant issues and news

Post RDR, it will become even more important for advisers in the UK to align themselves with a relevant professional body or accredited body. Membership of the IFP offers you support and guidance whether you are a Financial Planner or Paraplanner. With a huge range of benefits, why not have a look at some of the ways in which we can help you?

THE PROFESSIONAL BODY FOR FINANCIAL PLANNERS AND PARAPLANNERS

IFA Calendar.indd 64 30/05/2012 00:17

magazin

e

magazin

eIFA

CA

LEN

DA

RDates for your diary

2012 Olympic Games opens

Consultation period ends on Consultation Paper CP12/9 (Consumer Redress Scheme in Respect of Unsuitable Advice to Invest in Arch Cru Funds)

AUGUST2012 Olympic Games closes

Finalised Guidance FG12/14 (Transaction Reporting of Strategy Trades) comes into force

Republican Party presidential candidate to be formally confi rmedTampa, Florida, USA

SEPTEMBERDemocratic National Convention confi rming Barack Obama as the offi cial candidateCharlotte, North Carolina, USA

General elections, Netherlands

St Leger’s Day race, Doncaster. Unoffi cial start of the autumn stock market season

JUNEJUNEMay Bank HolidayMay Bank Holiday (delayed)and Jubilee Bank Holiday

General election in Greece

Emerging Markets Investment SummitPrague, Czech Republic

Earth Summit 2012 (UN Conference on Sustainable Development)Rio de Janeiro, Brazil

London 2012 Festival opens

Wimbledon 2012

Consultation period ends for Consultation Paper CP12/7 (Financial Services Compensation Scheme: Changes to the Compensation Sourcebook)

Policy Statement PS12/7 (Regulatory Prudent Valuation Return) comes into force

JULYCyprus assumes the EU Presidency (until 31 December 2012)

Implementation of the Alternative Investment Fund Managers Directive

Royal Henley Regatta Week

Legislative elections in France

US Pensions Summit Chicago, Illinois, USA

Have we forgotten anything? Let us know about any forthcoming events you think ought to be in our listings. (Sorry, press and offi cial events only.) Email us at: [email protected], and we’ll do the rest.

1

1

4 8

27

JUNE - SEPT 2012

Institute ofFinancial Planning

To find out more or join visit www.financialplanning.org.uk or contact us on 0117 9452470

Support you through regulatory change Engage with a community of professionals Follow a structured career path Increase your personal and business potential Harmonise your goals with those of your clients Keep up to date with relevant issues and news

Post RDR, it will become even more important for advisers in the UK to align themselves with a relevant professional body or accredited body. Membership of the IFP offers you support and guidance whether you are a Financial Planner or Paraplanner. With a huge range of benefits, why not have a look at some of the ways in which we can help you?

THE PROFESSIONAL BODY FOR FINANCIAL PLANNERS AND PARAPLANNERS

4 5

1920

2022

21

25

1017

12

27

17

26

30

2325

31

15

3

12

15


IFA Calendar.indd 65 30/05/2012 00:18

THE

OTH

ER

SID

E...

MOBSTERS IN TWINSETS AND CARDIES? RICHARD HARVEY WOULDN’T BE SURPRISED

MA MA MA MA MA BARKER

Grabbing The Customer’s InterestPensioners of Britain, rise up! Mount your mobility scooters, pack your cheese-and-pickle sandwiches, and take to the streets. You have nothing to lose but your puny savings rates.

Encouraging OAP delinquency might be reprehensible, but it was an understandable reaction from those who witnessed an elderly lady enquiring at our local Lloyds Bank as to what interest rate she was earning on her savings account, because she wanted to pay for her annual holiday. The answer she got from the cashier – 0.1%.

I rather hoped that this would trigger a Ma Barker-style response, and that she would pull a machinegun from her handbag, snarl “OK, wise guys, hand over the moolah”, and spray everyone with invective and bullets.

She didn’t, of course, meekly accepting that the annual interest on her savings might just pay for a cup of tea and a stick of rock. Or perhaps she might have been deterred by the notice stating that “aggressive and abusive behaviour by customers will not be tolerated”. (Question: are controlled protestations of righteous fury permitted, then?)

In similar vein, and in an idle moment, I recently completed one of those “How are we doing?” customer surveys from NatWest, my business and personal bank. A couple of weeks later, I received a follow-up phone call from an account manager asking why I’d only given the bank a niggardly 5 out of 10 rating on overall performance.

I assured him it was nothing to do with the staff at my local branch. The ladies behind the counter are unfailingly polite and pleasant, and, as the late John Le Mesurier might say, really rather lovely. (Sadly, there wasn’t a tick box in the survey allowing me to record that aspect of customer satisfaction).

No, it was solely to do with the laughable interest rates offered on deposit accounts. And then I gave him both barrels, with a sulphurous

rant about bankers’ bonuses, paltry business

lending and wimpy share

performance.

The sound of a choking sob came from the other end of the phone, so I consoled him by saying that the same applied to every bank on the High Street.

Come back, Ma Barker, all is forgiven. But then, she was the matriarch of a gang of bank robbers. And, in this case, who’s robbing who?

Communication BreakdownWas that a collective groan I heard from IFA-dom over the statement by the Institute of Directors that millions of people are abandoning pensions in favour of ISAs?

The latest fi gures from the Offi ce for National Statistics and HMRC show that while Britons invested £22.9 billion into private or company pension schemes in 2009, down on the previous two years, they stuffed almost double that, £44 billion, into ISAs during the same period.

It’s partly the result of the industry failing to explain, particularly to younger investors, that this is not an ‘either/or’ choice. Yes, take advantage of tax-free ISAs, but also remember that a pension still offers the best long-term value.

Not a simple message to deliver, but essential if pension savings are to return to an upward trajectory.

RICHARD HARVEYRICHARD HARVEYWOULDN’T BE SURPRISEDWOULDN’T BE SURPRISED

MA MA MA MA MA MA MA MA MA BARKER



The Other Side.indd 66 30/05/2012 00:19

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IFApublications are very male driven and focused.


’s. publications are very male driven and focused.


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fantastic. Not cluttered by endless comparison what is needed in the ifa community. fantastic. Not cluttered by endless comparison what is needed in the ifa community. Absolutely fantastic. Not cluttered by endless comparison

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tables. Punchy contemporary style.. More of the tables. Punchy contemporary style.. More of the fantastic. Not cluttered by endless comparison tables. Punchy contemporary style.. More of the fantastic. Not cluttered by endless comparison

same in the months to come please. A very readable tables. Punchy contemporary style.. More of the same in the months to come please. A very readable tables. Punchy contemporary style.. More of the

to the offi ce - not something I could say about

to subsequent editions. to subsequent editions. and interesting publication. to subsequent editions. and interesting publication. to subsequent editions.

a proper magazine rather than other cheaper and interesting publication. a proper magazine rather than other cheaper and interesting publication.

tables. Punchy contemporary style.. More of the same in the months to come please. A very readable tables. Punchy contemporary style.. More of the same in the months to come please. A very readable tables. Punchy contemporary style.. More of the

publication. same in the months to come please. A very readable publication. same in the months to come please. A very readable

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read that I would be happy to have delivered publication. read that I would be happy to have delivered publication. It looks like an interesting and enjoyable read that I would be happy to have delivered

It looks like an interesting and enjoyable

to the offi ce - not something I could say about read that I would be happy to have delivered to the offi ce - not something I could say about read that I would be happy to have delivered

many fi nancial publications! to the offi ce - not something I could say about many fi nancial publications! to the offi ce - not something I could say about

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to subsequent editions. many fi nancial publications! to subsequent editions. many fi nancial publications!

Very impressive and interesting publication. to subsequent editions. and interesting publication. to subsequent editions.

Looked and felt like Very impressive

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looking publications. a proper magazine rather than other cheaper looking publications. a proper magazine rather than other cheaper

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in bite size chunks. looking publications. in bite size chunks. looking publications.

I’m going get it instead of the looking publications.

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professional adviser papers and fi nancial adviser I’m going get it instead of the

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a proper magazine rather than other cheaper looking publications. a proper magazine rather than other cheaper looking publications. a proper magazine rather than other cheaper



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The magazine all the top IFAs are talking about... To get your free subscription simply fi ll out the form online at:www.ifamagazine.com/ content/subscribe

magazine


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eExcellent. Thank you. Excellent. Thank you. production with some good thought provoking articles

magazin

eproduction with some good thought provoking articles production with some good thought provoking articles Excellent. Thank you. production with some good thought provoking articles Excellent. Thank you.

magazin

eExcellent. Thank you. Excellent. Thank you. production with some good thought provoking articles Excellent. Thank you. Excellent. Thank you.

NEWS



MA

R 2

011

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ISSUE

1

V ICKER S ’KN ICKERSHAS THE IBC’s NEW

CHAIRMAN GOT WHAT IT TAKES?

REDBOX DAYWILL THERE BE ANY RELIEF

IN THE BUDGET BOX?

NOTHING UP

MY SLEEVESIS GEORGE SERIOUS

ABOUT ENDING THE

ANNUITY TRAP?

LOOK

NORTH A FR ICAN CR I S I S

BUT EUROPE HAS NOTHING

TO BE SMUG ABOUT

➹

L EAV ING PART YRDR, SORTING THE STAYERS FROM THE LEAVERS

date info useable, very good and easily read.good articles, relevant to my work. date info useable, very good and easily read.good articles, relevant to my work. date info useable, very good and easily read.



useful articles nice to see it in “magazine” style format Very impressive read and lots of

useful articles nice to see it in “magazine” style format Very impressive read and lots of

date info useable, very good and easily read.date info useable, very good and easily read.LOOK

read. content, appealing to the female reader as many publications are very male driven and focused. content, appealing to the female reader as many publications are very male driven and focused. content, appealing to the female reader as many read. content, appealing to the female reader as many


agazine

date info useable, very good and easily read.date info useable, very good and easily read.

rather than usual newspaper. read. rather than usual newspaper. read. rather than usual newspaper. useful articles nice to see it in “magazine” style format rather than usual newspaper. useful articles nice to see it in “magazine” style format rather than usual newspaper. useful articles nice to see it in “magazine” style format


BOX DAYWILL THERE BE ANY RELIEF

IN THE BUDGET BOX?

NOTHINGMY SLEEVESIS GEORGE SERIOUS

ABOUT ENDING THE

ANNUITY TRAP?

LOOK

➹➹➹ANNUITY TRAP?➹

ANNUITY TRAP?

Thank you. A quality magazine for with good content which is plain talking. Thank you. A quality magazine for with good content which is plain talking. Thank you. A quality magazine for



JUN

2

011

■

IS

SU

E

2

STRUCTURED THINKINGINVESTEC - NEW THINKING ON STRUCTURED PRODUCTS

THE FSA HAS FINALLY HAD ITS PRAYERS ANSWERED OVER PPI MIS-SELLING

SANTSA S IMPLER TAX CODE?DON’T HOLD YOUR BREATH

AFTER THE GREAT WAVEJAPAN - IT ISN’T OVER YET

DAY OF THE MIFIDCOMING SOON TO A SCREEN NEAR YOU

AND SINNERS

useful articles nice to see it in “magazine” style format rather than usual newspaper. useful articles nice to see it in “magazine” style format rather than usual newspaper. useful articles nice to see it in “magazine” style format

Very good layout and informative. rather than usual newspaper.

Very good layout and informative. rather than usual newspaper.



what is needed in the ifa community. fantastic. Not cluttered by endless comparison what is needed in the ifa community. fantastic. Not cluttered by endless comparison what is needed in the ifa community.

useful articles nice to see it in “magazine” style format useful articles nice to see it in “magazine” style format rather than usual newspaper. useful articles nice to see it in “magazine” style format

layout and easy to read. for IFA market. Really good.layout and easy to read. for IFA market. Really good.layout and easy to read.

Thank you. A quality magazine for with good content which is plain talking. Thank you. A quality magazine for with good content which is plain talking. Thank you. A quality magazine for


SANTSAND SINNERS

N e w s r e v i e w c o m m e


JUL

20

11 ■

is

sU

e

3

structured thinkinginvestec - new thinking on strUctUred ProdUcts

the fsa has finally had its prayers answered over ppi mis-selling

USAA s imPLer tAx code?don’t hold your Breath

After the greAt wAvejapan - it isn’t over yet

crisis

content, appealing to the female reader as many publications are very male driven and focused. content, appealing to the female reader as many publications are very male driven and focused. content, appealing to the female reader as many

Thank you. A quality magazine for publications are very male driven and focused. Thank you. A quality magazine for publications are very male driven and focused.



with good content which is plain talking. Thank you. A quality magazine for with good content which is plain talking. Thank you. A quality magazine for

fantastic. Not cluttered by endless comparison tables. Punchy contemporary style.. More of the fantastic. Not cluttered by endless comparison tables. Punchy contemporary style.. More of the fantastic. Not cluttered by endless comparison tables. Punchy contemporary style.. More of the same in the months to come please. A very readable tables. Punchy contemporary style.. More of the same in the months to come please. A very readable tables. Punchy contemporary style.. More of the



read that I would be happy to have delivered It looks like an interesting and enjoyable



what is needed in the ifa community. fantastic. Not cluttered by endless comparison what is needed in the ifa community. fantastic. Not cluttered by endless comparison what is needed in the ifa community. c o m m e

content, appealing to the female reader as many content, appealing to the female reader as many

N E W S R E V I E W



SE

PT

20

11 ■

I S

SU

E

4

IS IT GETTING TOO

HOT TO HANDLE?

BRAZIL

BRITAIN AFTER THE RIOTSWHAT HAVE WE LEARNED?

KEEP IT LEGALDO YOU KNOW THE UCIS RULES?

CL IMBING A WALL OF WORRYHOW DO WE GET OUT

OF THIS ONE?

MULT I -ASSET FUNDS

AND WHY YOU CAN’T IGNORE THEM

with good content which is plain talking. Good Not seen anything like this

with good content which is plain talking. Not seen anything like this

with good content which is plain talking.







fantastic. Not cluttered by endless comparison Absolutely

fantastic. Not cluttered by endless comparison Absolutely

tables. Punchy contemporary style.. More of the fantastic. Not cluttered by endless comparison tables. Punchy contemporary style.. More of the fantastic. Not cluttered by endless comparison tables. Punchy contemporary style.. More of the same in the months to come please. A very readable tables. Punchy contemporary style.. More of the same in the months to come please. A very readable tables. Punchy contemporary style.. More of the






many fi nancial publications! to the offi ce - not something I could say about many fi nancial publications! to the offi ce - not something I could say about



Brilliant! many fi nancial publications!

Brilliant! many fi nancial publications!

Very impressive and interesting publication. Looked and felt like

Very impressive Looked and felt like

Very impressive






a proper magazine rather than other cheaper are talking about...a proper magazine rather than other cheaper Breath of fresh air and topical are talking about...Breath of fresh air and topical

a proper magazine rather than other cheaper Breath of fresh air and topical

a proper magazine rather than other cheaper are talking about...a proper magazine rather than other cheaper Breath of fresh air and topical

a proper magazine rather than other cheaper

read that I would be happy to have delivered to the offi ce - not something I could say about read that I would be happy to have delivered to the offi ce - not something I could say about read that I would be happy to have delivered



with good content which is plain talking. with good content which is plain talking. Not seen anything like this


with good content which is plain talking.

BRAZILFor today’s discerning financial


OC

T 2

011

■

I S S U

E

5

CREDIT

RATING

AGENCIES

THOSE HALOS ARE

FINALLY SLIPPING

FINANCIAL

PLANNING

WEEKARE YOU

READY?

ETHICAL

INVESTMENT

CHANGING TIMES,

CHANGING OBJECTIVES

THE

VICKERS

BANKING

REPORTBUT IT

COULD

HAVE

BEEN SO

MUCH

WORSE

JOKEJOKEJOKETHE

IS ON ALL OF US

EUROPE BURNS WHILE

POLITICIANS FIDDLE

Cover 12.indd 3 30/05/2012 00:32

Schroder Managed Monthly High Income Fund

0800 718 777**www.schroders.co.uk/highincome

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

Monthly income, beautifully balanced

Broaden your clients’ income horizons with the new Schroder Managed Monthly High Income Fund:

– Catch some air. With an income aim of 5.5%* p.a. or around 0.5% paid each month.

– Keep your balance. With four well diversifi ed income sources, bond coupons, dividends from shares, property income and Schroders’ proven Maximiser income enhancement strategy.

– Stay on top. With multiple investment strategies run by highly rated Schroders’ fund managers including Thomas See, Gareth Isaac, Nick Kirrage, Kevin Murphy and Richard Sennitt, with a single fund management fee.

Make your income seeking clients smile. Be the fi rst to get on board.

Cover 12.indd 4 30/05/2012 00:32