For today’s discerning financial and investment professional
Making an Impact Responsible investing riding high
What might be the impact of coronavirus on global markets?
March 2020
ANALYSIS
REVIEWS
The power of paraplanning
ISSUE 86
COMMENT
INSIGHT
CONTE NTS
CONTRIBUTORS
March 2020
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Ed's Welcome
6 Brian Tora An Associate with investment managers JM Finn & Co.
Editor's Rant - What will be the impact of coronavirus on global markets? Michael Wilson looks for hard-to-get facts and figures in an emerging situation
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Global Environmental Opportunities Dr Marc-Olivier Buffle, Pictet-Global Environmental Opportunities Fund
Richard Harvey A distinguished independent PR and media consultant.
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Now is the time for impact Now is the time for impact – an introduction from M&G Investments to the concepts involved in impact investing
22 Tracey Underwood Founder of PACE Solutions
ESG Seminar The IFA Magazine doors are open to invite readers to join our ESG Seminars across the UK this year
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Brian Tora What lessons can we learn from the Woodford debacle? Brian Tora reflects on the rise of so-called ‘star ’ fund managers
Michael Wilson Editor-in-Chief editor @ ifamagazine.com
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Success in succession planning: we ask expert advisers Louise Jeffries and Michelle Hoskin for their practical tips
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Living in the free world:
Sue Whitbread
Richard Harvey extolls the virtue of living debt free after a recent house move
Editor sue.whitbread@ ifamagazine.com
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Insurance Doctor In this month’s guide to professional indemnity insurance, Dan West of Apex Insurance responds to advisers’ most common queries
Alex Sullivan Publishing Director alex.sullivan @ ifamagazine.com
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The power of paraplanning: Caroline Stuart talks us through the opportunities for paraplanners provided by the PFS Paraplanner Panel
37 Kim Wonnacott Technical Sales and Marketing kim.wonnacott@ifamagazine.com
Confused about SM&CR? Compliance consultant Tony Catt explains the practical implications for advice firms
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Breaking down the complexity in defined contribution pension transfers: Richard Hulbert, Defaqto
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Leading the way: Sue Whitbread talks to Wayne Bishop, CEO of King and Shaxson
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Better Business Tracey Underwood of PACE Solutions argues that the lost art of communication is an essential component for successful financial planning firms
Designed by: Becky Oliver IFA Magazine is published by IFA Magazine Publications Ltd, Arcade Chambers, 8 Kings Road, Bristol BS8 4AB | Tel: +44 (0) 1173 258328 © 2020. All rights reserved ‘IFA Magazine’ is a trademark of IFA Magazine Publications Limited. No part of this publication may be reproduced or stored in any printed or electronic retrieval system without prior permission. All material has been carefully checked for accuracy, but no responsibility can be accepted for inaccuracies. Wherever appropriate, independent research and where necessary legal advice should be sought before acting on any information contained in this publication. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. IFA Magazine is for professional advisers only. Full details and eligibility at: www.ifamagazine.com
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Career Opportunities From Heat Recruitment
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E D'S WE LCOM E
March 2020
HELTER SKELTER
I
t must have felt like a fairground in the offices of HM Treasury of late. After all, it’s not very often that we see a resignation from the Chancellor of the Exchequer - let alone one resigning before even delivering their first Budget statement. News of the departure of Sajid Javid and subsequent appointment of Rishi Sunak took many by surprise last month, but not our own Mike Wilson. Savvy readers might just remember reading Mike’s December column entitled ‘Twenty twenty vision’ in which he suggested that Mr Javid might well be out on his ear before Budget day. Please take a well-deserved bow Mr Wilson and reward yourself with an extra feather in your cap! With the budget set to go ahead on 11th March, we can only wonder whether the Tory manifesto promises to reform entrepreneur’s relief will feature amongst the details. And what about Mr Javid’s much talked-about leaning towards restricting pension tax relief for higher earners to 20%? No doubt you will be taking all the necessary planning steps with individual clients who might be affected should he make the change. We must remember however that this is a strategy which typically gains much air play ahead of most annual Budgets. Whether Mr Sunak ultimately has the same commitment to it as his predecessor we will just have to wait and see.
a trail of destruction in their wake across the UK. As our thoughts go out to all those affected, it reminds us that the importance of investing responsibly is becoming ever more a priority. As you will know, this is a subject on which we feel particularly strongly. This month, not only do we welcome the opinions and insight of experts from King and Shaxson, M&G Investments and Pictet - but we also extend a warm welcome to readers to come and join us at the IFA Magazine ESG Seminar events taking place around the UK this year. You’ll find more details inside and we really would love to see you there to join the debate and discussion on this crucial topic. Sue Whitbread Editor IFA Magazine
THE BUSINESS OF FINANCIAL PLANNING Whatever is ultimately announced in Chancellor Sunak’s Budget statement, the business of financial planning continues apace. In this month’s edition of IFA Magazine, we have plenty of insight and practical tips for greater business success. Whether it’s the power of paraplanning, the SM&CR, the challenge of PI renewal, the complexity of DC switching or getting to grips with succession planning, we hope you’ll find something of interest. STORMY WEATHER As if we needed reminding of the global climate emergency, the impact of Storms Ciara and Dennis has certainly left
IFAmagazine.com
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March 2020
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GOING VIRAL Will the Year of the Rat be remembered instead as a Black Swan? Michael Wilson looks for hard-to-get facts and figures in an emerging situation
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h dear, and my Billiton shares were doing so nicely too. The prime Australian purveyor of much-needed steelmaking coal to the People’s Republic of China, and a heck of a lot of iron ore, and a tidy bit of gold as well. Not to mention a six per cent dividend yield, although suddenly it’s heading for seven, and not for the best of reasons. (BLT’s share price had dropped by 12% in 20 days.) Who’d have thought that a flu-type virus could have such international repercussions? Well, nobody of course, except for anybody who’d thought at least a little bit about the implications of the new coronavirus, Covid-19, which first emerged in Wuhan during the closing days of 2019 - and which had put the whole city into quarantine in the space of just three weeks. Going on to become an official World Health Organisation “global emergency” just ten days later. At which point the new virus had already killed more people in six weeks than SARS (2002-2003) had in two years. Sheesh. DON’T PANIC We’ll be looking shortly at what, if anything, the spreading coronavirus means for the global financial markets – and more specifically, how the recent panicky talk might
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impact on Britain’s advisers. (Heck, we all make our living by advising clients not to over-react to 30-day crises, and rightly so.) The problem, for some of us, is that unfortunately there was already a growing consensus that valuations were getting stretched in the developed world, and that perhaps it might not take a very significant trigger to spark a sell-off that might end the post-2009 bull run once and for all? Let me say right away that I’m with the mainstream optimists who think we’ll pull through the journey this year, even if it does mean accepting a roadside tow from Donald Trump’s absurdly over-hyped debt juggernaut. That particular engine of growth will need some expert
Let me say right away that I’m with the mainstream optimists who think we’ll pull through the journey this year, even if it does mean accepting a roadside tow from Donald Trump’s absurdly over-hyped debt juggernaut.
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diagnostics under the hood in due course, and probably an invoice from Big Bill; for the moment, however, it might do us all a good turn this year if it bolsters confidence. For others, however, with a more Malthusian bent, the coronavirus provides a convenient scourge with which to whip the rest of us growth-addicted liberals into the realisation that eight billion people on the planet is probably more than it can comfortably cope with. And that a virus with a 23% mortality rate (don’t panic yet!) might reset the world’s demand expectations in a way that hasn’t been seen since the plagues of the Middle Ages. (Repeat: don’t panic yet. All such prognostications are statistically faulty. As we’ll see shortly.) NUMBERS, NUMBERS It follows, of course, that by the time you read this, you’ll know more than I or anybody else could have hoped to know a couple of weeks ago. As things stand - or rather stood – the spread of the disease in China had stabilised, if not slowed, by mid-February, with 44,000 confirmed cases to date and 1,100 deaths. Although the People’s Republic had effectively quarantined more than 100 million people in their own cities, it was inevitable that some leakage abroad would follow. The first cases of coronavirus were starting to turn up in other countries, including Britain (eight cases in mid-February), and 176 cases (check?) on
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March 2020
a cruise liner that was lying in quarantine off the coast of Japan (check). One of the key problems that health authorities currently face is that nobody knows very much about the epidemiology of this brand new virus. For instance, what is the incubation period? Three days, 14 days? At what point could a recovered patient be considered safe for discharge? And (shudder) could he have been infectious before any of his symptoms emerged? That, of course, would be a virologist’s nightmare – they’d much rather that people keeled over visibly within 24 hours, because that would make it so much easier to decide
Although the People’s Republic had effectively quarantined more than 100 million people in their own cities, it was inevitable that some leakage abroad would follow
who should be on the plane out of China , and who should be in an isolation ward.
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March 2020
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The panicky version of the story is that, if every infected person meets 40 other people in the course of a normal day and infects 2% of them every day for fourteen straight days, and if they all then go on to do the same, then that’ll set up a compound growth rate that could stop the country in a matter of months. But can it really be correct to talk about a 23% mortality rate for the coronavirus, as some people do?
The better news is that there are probably twenty undetected cases of coronavirus in China for every case that becomes bad enough to be taken to a doctor. The overwhelming majority of sufferers get nothing more than a mild flu-like infection that clears in a couple of days. Yes, it’s still a worry that my minor sniffle might be enough to kill my elderly neighbour with an existing chest infection, but that’s epidemiology for you.
Only if you ignore the logic of mathematics……
Equally to the point is the worry that the coronavirus might eventually migrate to less developed countries that wouldn’t be able to isolate all their severely ill in hospitals because they didn’t have the infrastructure to do it. Personally, I’d expect that this might put a question mark over financial markets in some East Asian regions. But for the time being, that’s just guesswork.
Consider, for example, the relatively few cases that get to an isolation hospital. Which, in China’s case, was about 10% of all coronavirus diagnoses. Data published on 7th February showed that, of 34,546 confirmed coronavirus cases to date, 6,101 had progressed to “severe”, and that 722 (23% of those) had died while 2,050 (66%) had been declared fit for discharge. And the rest, we presume, were still in care?
WHAT DOES IT MEAN FOR BUSINESS?
Sooooooo, 722 deaths out of 34,546 confirmed cases looks like a 2% danger rate, which is bad but not completely terrifying. The bad news is that those numbers are faulty, because we’re getting our historicity wrong. We really ought to be comparing today’s mortality numbers with the infection rates of two or three weeks ago, when hospital admissions were much lower and when the deceased actually caught their viruses. Time’s winged chariot has a way of skewing the data like that.
The next few weeks will give us more to go on. In the meantime, bioscience and virology labs around the world are currently working in unison to analyse the genetics of the new virus, with a good deal of data sharing going on, and with the WHO acting as co-ordinator. A Californian company is already claiming to have synthesized the virus in a lab, which is encouraging news for all of us who want to see an antivaccine soon.
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of making foreign goods in China became too much of a logistical problem?
Foreign agencies have reported that large manufacturing operations elsewhere in the countr y are also non-operational, and that Apple, Volkswagen, Qualcomm are all affected by shortening stockpiles.
But enough of such mathematical whataboutery. By the middle of February, many of the developed world’s stock markets were into negative territory, year to date, and not just because the 2019 Santa Claus rally had finally run its course. (In Britain’s case, the shadow of Brexit was certainly an additional factor, but let’s not over-complicate our view of the situation.) No, on the whole, the market’s attention was focused on the China question. Not so much, what would the coronavirus do to a domestic import market that had already been slowing appreciably for several years – but what would it do to inward investment? What about China’s hugely important needs for raw materials, notably oil? What if the quarantine lockdowns continued to make it difficult to make things in the People’s Republic? Indeed, what if the whole idea
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There was also the small matter of China’s industrial shutdown. Which is putting it rather too strongly, because at the time of writing it was only the Wuhan area that was officially closing its factory doors. But foreign agencies have reported that large manufacturing operations elsewhere in the country are also non-operational, and that Apple, Volkswagen, Qualcomm are all affected by shortening stockpiles. CNBC reported in mid-February that the country’s oil importers were buying up to three million barrels per day less than usual, and that the global outlook for 2020 oil sales was now static, or falling. Even the mighty Alibaba, the e-commerce operator which supplies vast quantities of Chinese-made products to the Western world, declared on 13th February that the “Black Swan” coronavirus (yes, it used that word) had disrupted its operations and had resulted in dislocations of food and medical supplies, and much else besides. The white face masks we’d been seeing on the news were becoming scarce. And commuter transport facilities in several cities were reported to be half-deserted – even in bustling Shanghai, which is a very long way from Wuhan. What might all that imply? Probably, that workers are being stood down or even left unpaid. Possibly that routine tasks like shopping or paying the rent were becoming difficult. Very probably, that the banking system may come under
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heavy strain, as if it didn’t already have a mountain of bad debts to deal with. And – perish the thought! – that popular resentment against the authorities might become a political factor once again. Things have quietened down since the early noughties, when a sudden influx of country-dwellers to the overcrowded cities had put the social compact under severe strain, forcing the government to splurge trillions on city housing and consumer benefits which it couldn’t quite afford. THE WIDER INTERNATIONAL CONTEXT As we’ve said, many of the world’s major financial markets spent January in something of a state of shock. Which wasn’t too surprising, considering the number of unknown factors in play. And although February saw a brief attempt at a relief rally, the emergence of further difficult data in mid-month sent prices scuttling downward. Everywhere, that is, except for the United States, where Donald Trump’s improved prospect of re-election seemed to give the markets there new heart. That prospect, of course, remains a two-edged sword if it encourages the White House to adopt a tougher line against Beijing in its on-off trade relationship. It will take more subtlety than this president possesses to walk a sensitive line through a difficult period. But we do know that the National Retail Federation forecast that
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March 2020
US retail imports would fall by 12.9% year-on-year in February, thanks to supply difficulties with China, and by another 9.5% YOY in March. The fact that Beijing had meanwhile offered Washington a tariff cut on $75 billion of US goods might not be enough to make those imports actually happen….. WHAT ELSE? Your guess is as good as mine, to be honest. This is a fastmoving situation. But here are a few of the questions that I’ll certainly be asking in the coming months: What will be the effects on transport and tourism? Not just in China, but in the world at large? Recent TV coverage of luxury ocean liners being quarantined at sea will have done nothing to boost the fortunes of the sector, and there will presumably be a fall in passenger air traffic.
Where will wider commodity markets such as oil and gas go if the China lockdown continues and the factories aren’t working?
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E D'S RANT
March 2020
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I FAmagazine.com
March 2020
PICTET ASSET MANAGE M E NT
GLOBAL ENVIRONMENTAL OPPORTUNITIES Dr Marc-Olivier Buffle, Senior Product Specialist, Pictet-Global Environmental Opportunities Fund argues the case for investing in solutions to worldwide challenges
HARNESS GROWTH OPPORTUNITIES WHILST SAFEGUARDING THE ENVIRONMENT Protecting the environment is now a priority for consumers, companies and governments. Their converging interests, driven by increased global awareness, technological advances and health concerns, are underpinning a global drive to safeguard the world’s natural resources. 1. CONSUMERS' INCREASING AWARENESS North American organic products market US organic food market size (USD bn) 70
60
50
Public opinion is forcing governments and private companies to make large-scale changes to their strategies. With nearly 50 per cent of the world connected to the internet1, the transmission of thought-provoking information has never been faster or more wide-reaching. Bearing testimony to this is the global social phenomenon that is “Under the Dome”, a film documenting the scale of China’s urban pollution, which was viewed online 200 million times within days of its release in 2015. Soon after, China pledged to cut its CO2 emissions to between 60–65 per cent of 2005 levels by 20302. Companies are also responding to consumer demands, and are increasingly factoring in environmental considerations into their thinking. The rising supply of organic produce in agriculture is a prime example of a sector benefiting from a shift in consumer habits. 2. PRIVATE SECTOR INNOVATION
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Private companies are seeking to benefit from the shift in consumer focus.
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For instance, the development of advanced analytics and services in the waste management and recycling sector is helping alleviate the wasteful use of natural resources.
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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E
0
Meanwhile, innovations such as better fluid dynamics modelling technology have greatly improved the quality and efficiency of water treatment and wastewater reuse technologies. In another example, companies can now analyse minute concentrations of pollutants, such as oestrogen from birth control tablets, in rivers. This
Reference: Jefferies equity research
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PICTET ASSET MANAGE M E NT
March 2020
3. GOVERNMENT ACTION
can help them understand these chemicals’ effects on fish populations, and as a result bring about positive environmental change. Between 2000 and 2012, global annual applications for environmental patents more than doubled (see chart). This is indicative of the increased focus private companies are placing on providing innovative solutions to environmental issues. Private companies are seeking to benefit from the shift in consumer focus. Environmental patents by region
Environmental sustainability is also benefiting from governments' policy changes, such as the recent pledges by China to reduce CO2 emissions. This is in part being driven by new monitoring technologies, which are helping in the production of reports such as The World Health Organization's Air Quality Index (see below). Global levels of urban ambient pollution*
16,000 14,000 12,000 10,000 8,000 6,000
*Air quality is represented by annual mean concentration of particulate matter, smaller than 2.5 micrometers, per m3. Reference: World Health Organization, 2016
4,000
CHINA
EUROPE
JAPAN
Reference: World Intellectual Property Organization
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US
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
2,000
Recent reports have stated that over 7 million people died prematurely as a result of air pollution in 20123. Such statistics have contributed to the rise of multilateral environmental agreements, of which the cumulative total reached 1,100 by the end of 20124. Companies that recognise and support consumers' and governments' environmental shifts are likely to benefit and represent attractive long-term opportunities for investors.
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PICTET ASSET MANAGE M E NT
March 2020
Dr Marc-Olivier Buffle, Senior Product Specialist, Pictet-Global Environmental Opportunities Fund
Environmental spending in China: waging a “war on pollution” 8,000
INVESTMENTS (RMB BILLIONS)
Note: *Landfills are the third-largest man-made source of methane. 7,000
[1] Internet World Stats [2] United Nations Framework Convention on Climate Change
6,000
[3] World Health Organization
5,000
[4] International Environmental Agreements Database
4,000
PICTET-GLOBAL ENVIRONMENTAL OPPORTUNITIES AT A GLANCE
3,000 2,000 1,000 0 2001-05
2006-10
2011-15
2016-20E
2021-25E
Source: China National Bureau of Statistics, Pictet Asset Management, 2020
INVESTING FOR A SUSTAINABLE FUTURE Environmental issues are now a matter of global importance. Companies that provide effective products and services that increase resource efficiency and minimise pollution are well placed to grow strongly. In our view, by investing in these firms, investors can make a positive contribution towards a more sustainable world, as well as generating attractive capital gains.
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Invests exclusively in companies solving global environmental challenges such as pollution control, water supply, renewable energy, waste management and sustainable agriculture. The fund is also a good option for those who don’t want to invest in sectors such as oiland gas or mining.
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The fund invests in the world’s most environmentally responsible public companies – those with a small environmental footprint and that are building products or services that have a positive impact on the environment.
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We believe the fund could be a good alternative to traditional global equity funds for this portion of an investors’ portfolio and for those who want to benefit the environment whilst investing.
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The UK Creative Content EIS Fund, in association with the BFI, brings a new era of investing in the UK creative industries aligned to the Government’s objective for EIS. There has never been a better time to create, own and invest in UK content. To find out more get in touch with us: info@calculuscapital.com 020 7493 4940 www.creativecontenteis.co.uk In association with
Before investing in the UK Creative Content EIS Fund, you should read the Information Memorandum carefully and take professional advice. EIS is a long term investment and the value can fall as well as rise. Any person making a subscription to the EIS Fund much be able to bear the associated risks.
Bodyguard (Courtesy of World Productions)
The Fund will invest in a diversified portfolio of growth focused UK creative content companies, capitalising on the unprecedented upsurge in demand for creative content.
M&G
March 2020
NOW IS THE TIME
FOR IMPACT But what does it really mean for advisers and investors? What are the different investment approaches for advisers to consider? We’ve asked the impact investing team at M&G Investments to give us an overview of the key issues involved with this crucial sector as we begin a new mini-series to focus on impact investing.
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he world is facing a rising tide of societal challenges, from the potential chaos associated with the breakdown of our climate, to ludicrous levels of waste and pollution, to vast and growing social inequality. Governments around the world lack the resources needed to deal with these challenges on their own, and hence responsibility is increasingly falling to the private sector, and investors, to help do something about them. Impact investing, specifically, is starting to drive the flow of muchneeded capital towards solutions to the critical social and environmental challenges we are facing, but there is much more to be done. IMPACT IN BRIEF Impact means investing in companies that aim to deliver meaningful societal outcomes by addressing the world’s major social and environmental challenges, while at the same time producing a financial return. These investments can be made in both emerging and developed markets and target a wide range of impact areas, which can include
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climate solutions, accessible healthcare, the circular economy and quality education, among others. These impact investment areas are increasingly being mapped to the United Nations Sustainable Development Goals (SDGs), which provide a framework against which impact can be assessed and measured. WHY IS IMPACT NECESSARY? Recent campaigns, including the activities of Extinction Rebellion and the school strikes initiated by Greta Thunberg, have helped to highlight some of the real and present challenges the world is facing. With 20 of the past 22 years having been the hottest since records began, the world’s leading climate scientists warned last October that we only had a dozen years left to keep global warming to a maximum of 1.5°. The report, from the UN Intergovernmental Panel on Climate Change, said that beyond this, even half a degree would significantly worsen the risks of drought, floods, extreme heat and poverty for hundreds of millions of people.
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M&G
Impact means investing in companies that aim to deliver meaningful societal outcomes by addressing the world’s major social and environmental challenges, while at the same time producing a financial return
It is not only the challenges associated with climate change we are facing though. The world generates two billion tonnes of waste annually, and by 2050 it is estimated that if we carry on as we are, there will be more plastic in the oceans than fish (by weight). Social factors, including education, employment status, income level, gender and ethnicity, have a marked influence on how healthy a person is, with health inequities having a significant financial cost to societies, according to the World Health Organisation (WHO). As an example, the European Parliament estimates that losses linked to health inequities cost around 1.4% of gross domestic product (GDP) within the European Union — a figure almost as high as the EU's defence spending (1.6% of GDP). Meanwhile, last year the World Bank said that more than 260 million children worldwide were out of school, while more than half of those actually in education were not learning. The list goes on. It was to tackle these kinds of societal challenges that the aforementioned SDGs were introduced in 2015. These represent a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity – with a timeframe that runs to 2030. The 17 Goals (with 169 key performance indicators, or subgoals) build on the Millennium Development Goals, while including new areas such as climate change, economic inequality, innovation and sustainable consumption among other priorities. The SDGs also provide a framework for delivering sustainable outcomes, and are increasingly being adopted by both investors and companies as a means of framing their sustainable, or impact, activities. It is also possible to create specific impact targets focused
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March 2020
on key investible impact areas, which can also be mapped against the SDGs. This provides a robust investment and measurement framework, and helps impact investors to stay focused on the most pressing issues facing society and the planet we live on. To meet these goals, it has been estimated that some US$6 trillion a year will need to be spent, but government alone cannot foot this bill – in fact, we are looking at a funding gap assessed to be in the region of some US$2.5 trillion. This is why investment capital is vital, and part of the reason why so much focus is being put on impact investment. CHALLENGES AND OPPORTUNITIES The challenges represented by the SDGs are huge, but so too are the associated opportunities, and the potential rewards. A report by the Business & Sustainable Development Commission found that achieving the SDGs in just four economic areas could open 60 market ‘hot spots’ worth an estimated US$12 trillion by 2030 in business savings and revenue. The report highlighted that, for example, achieving the single goal of gender equality could contribute up to US$28 trillion to global GDP by 2025, according to one estimate by the McKinsey Global Institute. The overall prize, it said, was enormous, and impact investors are at the vanguard of capitalising on these opportunities. LOOKING CLOSER AT IMPACT Historically, impact investing consisted primarily of private finance to fund specific, impactful projects. Because of this, it sat chiefly within the sphere of institutional or high net worth investors, with little access for the general public and more limited capital available. But that is not to say the demand isn’t there. Impact investment has become one of the fastest-growing areas of responsible investment (albeit from a low base), attracting interest from a wider set of investors than seen previously. In 2018 the Global Impact Investing Network (GIIN) survey found respondents collectively managed over US$228 billion in impact investing assets – up from US$114 billion reported in the 2016 survey.
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A portion of this growth is driven by the emergence of listed equity funds with impact remits. These can provide liquid, open-ended investment vehicles, which allow for the ‘democratisation’ of impact, giving a stake in the game to ordinary people who want their investments to make a difference, or who realise the vast opportunities offered by investing for the good of society. DIFFERENT TO ETHICAL OR ESG Impact investing is fundamentally different from traditional ethical investing or environmental, social and governance (ESG) investing – even if the difference may seem subtle on the surface. Ethical investing has been with us for decades, and some would say longer. It had its origins in the Quaker movement and was originally a matter of negative screening, put in place to match the values of individuals or the public institutions and foundations representing them. ESG investing takes a broader approach and incorporates environmental, social and governance
Impact investing is fundamentally different from traditional ethical investing or environmental, social and governance (ESG) investing – even if the difference may seem subtle on the surface
considerations alongside – or within – financial analysis. It looks to integrate issues such as shareholder rights, stakeholder considerations and reputational risk into the investment framework. Often, these strategies still have some basic exclusions, but the focus is on identifying the ‘extra-financial’ risks and opportunities a company is facing within the more traditional financial analysis. Impact funds in the listed equities space, meanwhile, need to invest in companies that have the explicit intention of addressing a range of societal and environmental issues the world is facing, again, increasingly framed by the
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SDGs. Along those lines, there are several areas that impact investors have to consider, beyond the financial investment case for a business. IMPACT CONSIDERATIONS One element that investors need to consider is the idea of ‘intentionality’. This is when a company specifically sets out to deliver a particular impact, with that goal being part of the company’s mission statement, strategy and actual day-to-day operations (inadvertent impact doesn’t count). There is also intentionality from the investor’s viewpoint; that is, the intention to generate positive social or environmental impact through an investment. To achieve this, investors must actively pick stocks because of their positive impact, rather than screening out companies or picking the least bad from each sector. In traditional impact investing, the ‘additionality’ of the investment is also considered — identifying and reporting the resultant impact of every pound, euro or dollar invested in a project. For example, a specific amount invested allowed a company to build social housing for 10,000 people, which otherwise would not have been built. This is the additionality of the investment. As listed equity impact funds are generally dealing in secondary markets, and the directing of that funding is often not possible, additionality is considered in other ways, generally focused on understanding the additionality of the company. To do that, we might ask how the world would be different if that particular company did not exist or if it were not adequately funded, or how replicable its products or services are. Another key differentiator between impact and other forms of responsible investment is ‘measurability’. This is one of the central tenets of impact investing, and also one of its most challenging aspects, especially so for investors in public equity markets where measurement can be less clear. Quality of data and measurability of intangibles are key challenges here, but they need to be overcome for public market impact investors to be effective. Given the scale of the challenges the world is facing today, we need to invest now to help protect the future of the planet and our place in it. Impact investment should increasingly help drive solutions, and can do so while delivering attractive investment returns to investors.
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All portfolios are designed to be available on any adviser platform. Please contact us for access.
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March 2020
ESG SE M I NARS
ESG -
FACING THE FUTURE Advisers are invited to join us for the next series of IFA Magazine ESG seminars around the UK which focus on the detail of ESG investing
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he issues and challenges posed by the global climate emergency continue to hit the news headlines. The investment world is not immune to these challenges nor can it stand by without taking action. It can be little surprise to see the growing influence and importance of responsible investing and the surge of interest and support which it has now earned amongst advisers, planners and paraplanners. At IFA Magazine, we are strong supporters of this movement. If you want to find out more detail as to what is really going on, we extend a big welcome to you to come and join us and a range of subject experts at our upcoming events around the UK. At these events we will focus on the detail of Environmental, Social and Governance (ESG) investment and the particular challenges and opportunities which it presents. If you’re an adviser, paraplanner, asset allocator or investment manager in the UK today, issues of responsible or sustainable investing will be firmly on your agenda. Clients’ attitudes are changing. Not only is their day to day behaviour changing to reflect the pressing climate emergency which we face but their financial planning and investment needs are also not exempt from this. Action is needed. But don’t just take our word for it. Let’s take a look at the detail. Recently, Morningstar Manager Research released their latest Quarterly European Sustainable Fund Flows data and commentary for Q4 2019 and full year analysis. The results which their research revealed are compelling and provide clear evidence that this movement is having a significant impact on the world of investment. Below we highlight the key takeaways from the Morningstar research: KEY TAKEAWAYS INCLUDE: • The European sustainable funds universe pulled in record inflows of EUR 120 billion in 2019, propelled by record-breaking inflows of EUR 47.3 billion in the fourth quarter. • Assets in European sustainable funds closed the year at EUR 668 billion, up 56% from 2018. • Product development showed no sign of abating. 105 new sustainable offerings were launched in the fourth quarter, bringing the total number of launches for 2019 to 360 and the overall number of sustainable funds domiciled in Europe to 2,405. • More than 50 of the 360 funds launched in 2019 had an explicit climate-oriented mandate. • Asset managers continued to repurpose and rebrand existing funds, while some expanded their exclusion lists.
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A growing number of offerings, especially in the Nordics, are divesting from fossil fuels companies. • Passive funds continued to gain market share. In the fourth quarter, index funds and exchange-traded funds garnered just shy of EUR 13 billion in sustainable fund flows, accounting for 27% of total quarterly flows. They now represent 21% of European sustainable fund assets. Hortense Bioy is Director, Passive Strategies and Sustainability Research, Manager Research, at Morningstar Europe. He comments: “2019 was a big year for sustainable investing. Equally, it was a record-shattering year for European sustainable funds, driven by increasing investor interest in ESG issues and a favourable regulatory environment. As more investors look for ways to mitigate ESG risks—particularly climate risk—and align their investment portfolios with their values and sustainability preferences, we can expect the universe of sustainable funds and the money flowing into it to continue growing.”
JOIN THE DEBATE – BOOK YOUR PLACE NOW The first IFA Magazine ESG seminar takes place on 24th March 2020. It will be hosted at the offices of M&G Investments, 10 Fenchurch Ave, Langbourn, London EC3M 5AG. With fund managers, subject experts, advisers and paraplanners getting together, it promises to be an information dense, useful and practical session packed with detail on the whats and whys of investing responsibly as well as the looking at exactly how this can be done in order to achieve the best outcomes for clients. The event will run from 10am until 1:30pm, to also include lunch and CPD. To book your place email kim.wonnacott@ ifamagazine.com Subsequent IFA Magazine ESG seminar events will be held in Birmingham in May, Manchester in June and Edinburgh in September and you can book your place at any of these events now. We look forward to seeing you!
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BRIAN TORA
March 2020
A SKY FULL OF STARS? What lessons can we learn from the Woodford debacle? Brian Tora reflects on the rise of so-called ‘star’ fund managers and the importance of effective due diligence when it comes to fund analysis and selection
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f there was one theme that was prominent in the dying months of last year and as the new decade got underway, it was the rise and fall – and the role – of the so-called star fund manager. While the rapid descent of Neil Woodford has probably been the most talked about development in this area, the significant sums earned by the most successful fund managers has also thrown a spotlight on the increasing power some of these players now have in the retail investment market. Of course, the concept of star fund managers is far from new. There have been plenty to whom this description could be reasonably applied in my lifetime and more
than a few that could have earned this accolade in the early years of the professional investment management industry. Arguably one of the first was Benjamin Graham, considered the father of value investing. Although he was an American investor, he was actually born in London towards the end of the nineteenth century. Many will consider Warren Buffett a star fund manager, even if his Berkshire Hathaway company is hardly a conventional retail fund. These are people who have maintained their reputations over the years, but not all fund managers who have aspired to star status have managed to stay on track through thick and thin. FALLEN STARS
Not all fund managers who have aspired to star status have managed to stay on track through thick and thin
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Anthony Bolton, the highly regarded manager of the Fidelity Special Situations fund during the 1980s and 1990s, found the transition to managing a fund investing in China a tricky business. I recall also one Peter Young, a European fund manager with Morgan Grenfell who enjoyed a strong following, who fell from grace in a spectacular fashion. It turned out
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his success was based on trickery and fraud, resulting in his prosecution. But the abiding image for many who followed this story was his arrival in court dressed as a woman. Interestingly, I lunched with one of his ex-colleagues the week the story broke who told me the revelation of his dark doings came as less of a surprise to those who had worked with him than it did to the investors who backed him. One wonders why he wasn’t spotted as a wrong ‘un sooner. Some stars remain in the firmament. Peter Lynch, who ran the biggest mutual fund in the US for many years – Fidelity’s Magellan Fund, became a legend and published a book which included many quotes I found useful when addressing investors and their advisers at conferences. In “Beating the Street” he opined that no-one could accurately predict the future direction of stock markets, currencies or economies. “Dismiss all such forecasts” he said. Yet he grew the fund significantly over the years and was able to retire at the age of 46, turning his considerable energies to charitable works. BACK TO THE FUTURE One cannot help but wonder what the likes of Nick Train and Terry Smith might view as their future legacy. Terry Smith was an investment analyst at James Capel (now HSBC Investment Bank) when I worked there in the 1980s. I knew him, though not well. His book, Accounting for Growth, published in 1992 sent shock waves through the investment industry, but probably gave him the opportunity to prosper in the way he has as it made him hard to employ in the investment banking world and probably encouraged him to establish his fund management business. In 2019 his was the only fund to rank in the top ten of those that attracted positive inflows that was not an index-tracker. It is now one of the biggest retail funds in the UK. TRAIN OF THOUGHT When Nick Train and Mike Lindsell set up their fund management business, I met with Nick and was encouraged to back the investment trust they launched at the outset, which is arguably the best investment decision I have ever made. A thoughtful and considerate manager, he would be the first to admit that successful positive runs can come to an end without warning. The problem, of course, is that as a star manager, your every decision is under close
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The problem, of course, is that as a star manager, your ever y decision is under close scrutiny so, when something does not go according to plan, you can expect plenty of media coverage on your apparent mistake
scrutiny so, when something does not go according to plan, you can expect plenty of media coverage on your apparent mistake. ANY GOLDEN RULES? There are no truly golden rules that investors and their advisers should follow when trying to decide whether a star manager is worth backing. Obviously, consistency in delivering above average returns is bound to encourage support, though no warning bells ring when the stance they have pinned their strategy to suddenly turns sour. Bill Mott, who I knew for years as a consistent income fund manager, suffered greatly in the wake of the financial crisis of 2007/08 when banks were forced to cut or even eliminate their dividends. The Neil Woodford debacle highlighted the pressure these high-profile managers are under to deliver superior returns. His comeuppance came as a result of overloading his funds with illiquid investments in an effort to achieve the asset appreciation he knew his investors had come to expect. It might have worked in the long term, but doubtless now the regulator will be looking closely at the nature of investments held in open-ended funds where instant encashment is considered a right. So should advisers. Brian Tora is a consultant to investment managers, JM Finn.
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March 2020
SUCCESSION PLAN N I NG
SUCCESS IN
SUCCESSION PLANNING Last month, Giles Dunning, of specialist law firm Stephens Scown, shared his insight into the realities of succession planning for business owners in the IFA sector. Following that theme, we asked Louise Jeffreys, MD of specialist IFA mergers and acquisitions firm Gunner & Co. and Michelle Hoskin of Standards International, AKA little Miss WOWW! ®, to pick up where Giles left off, focussing on the importance of planning ahead.
WHAT, WHY AND WHEN? Succession planning and your ultimate exit as a business owner can come in many forms. Possibly the most talked about route to exit in the press is a trade sale – by which
Given the nature of exit planning, it is likely that you are only going to do this once. Making a success of this involves identifying all stakeholders who will be affected by your decision and reflecting on the future impact to them
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we mean integrating your business into another, usually larger, financial planning-based firm. This a very popular route for financial planning firms to follow. This gives you the opportunity to pass on the responsibility of running the business, whilst typically giving your clients the opportunity to access additional or enhanced services, such as more extensive IHT planning, or access to discretionary fund management. However, this is not your only option. There are two other routes that are becoming popular: releasing capital by selling to an investor (rather than a party in your industry), or passing on the ownership of the business to all or some of your staff. This could be through a management buyout, or potentially an Employee Ownership Trust (EOT). Paradigm Norton is an excellent example of a financial planning firm which, in 2019, transferred a majority of its shares to an EOT. The transfer of 80% of shares in the company to the EOT has given all its’ staff a stake in its future.
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Both of these options tend to allow your business to continue with a similar culture and approach – something that is harder to achieve with a trade sale. Right from the very start, it is essential to identify and constantly question your ‘why’. Why are you doing this? What do you really want to achieve by doing so? Questioning your motivations and objectives can help you understand which options would be best for you, and when and how you should put a plan into place. We often see business owners who spend more time considering the practicalities of exiting their business rather than focusing on their true objectives and how their chosen exit strategy can complement these. Given the nature of exit planning, it is likely that you are only going to do this once. Making a success of this involves identifying all stakeholders who will be affected by your decision and reflecting on the future impact to them. This often extends to your family, your team, your clients and potentially many others. WHEN DO YOU START? The time to focus on these objectives is now. Regardless of when or even whether you plan to exit, planning ahead is a long process and needs to start years in advance. This way, the strong processes and procedures which would benefit you at the point of exit can be fully embedded so that they become common practice within your business and your team. The good news is that these elements will usually bring improved business efficiency in themselves, therefore your early attention to them is strongly recommended. THE MARKET Understanding the diversity of the market can help you to understand the type of buyer into which you would consider integrating your firm. There are many ways to segment the market for financial planning firms. As brokers, our approach at Gunner and Co. is to differentiate buyers by their motivations for growth. We see a lot of talk in the market around consolidation.
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Often the focus is on ‘vertically integrated’ firms buying businesses with the intention of moving existing income streams that currently sit with third parties, within the buyers business, thus generating a greater return on investment. What you may not realise is that by taking multiple bites of the total expense ratio (TER) cherry, vertically integrated firms are able to create a lower overall cost for the client. Quilter Private Client Advisers, for example, can offer clients a full financial planning service for a TER of 1.46% (depending on the detail of the client and precise agreed service level). This often undercuts smaller, ownermanaged practices which struggle to benefit from such economies of scale and bargaining power. Approaching the market with similar motivations are multi-service, private client-led businesses, such as large accountancy firms. By acquiring quality financial planning businesses, firms such as Mazars can grow both their financial planning arm and their broader client services functions such as tax planning, personal and corporate accountancy, to name but a few. This provides their clients with the opportunity of having all their financial needs looked after in one place, simplifying their affairs and potentially moving their ‘trusted adviser’ relationship from a single financial planner, to a full-service firm with a depth of expertise Whilst many acquirers in the market have multiple client offerings, leading to an enhanced return on investment, there is also an abundance of smaller, typically regionally or locally focussed firms looking to enhance organic growth through small, well-chosen acquisitions. Often a smaller buyer will give you the reassurance of knowing exactly who will be looking after your clients as well as a similar local feel to your business. However, their ability to resource an acquisition, be it financial or logistical, should be thoroughly understood. Some networks offer members an exit route through a ‘practice buy-out’. This is essentially where another member firm buys your firm, funded by the network. In practice this can offer your clients with a certain level of consistency of proposition, however these transactions are not always in line with external business valuations.
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CORE VALUE DRIVERS MICHELLE HOSKIN OF STANDARDS INTERNATIONAL
this will be managed by an investment specialist. Good comes in many forms, but at the core should be a strategic rationale, clearly defined execution and a consistent approach.
Whilst there is a well established ‘corridor of value’ for financial planning firms, there are certainly some things you can be doing now to reach the higher multiples at the point of sale or exit and often, more importantly, to have your pick of the buyer market.
• Your team structure. How you have built your team and how client relationships are managed can make your business more - or less - desirable to a buyer. Put simply, a team of self-employed advisers makes transactions complicated, reducing the pool of interested buyers. Equally, if client relationships are concentrated within a small number of individuals, who don’t own the company, a buyer may question where the intrinsic value of the business lies and what you actually have to sell. Conversely, clients who are used to multiple touch points and a high
Make sure you give full consideration to the following points: • A best in class client service proposition and defined systems and operations. Being able to articulate your service, systems and operations is the first essential step to getting in front of quality buyers. This can be notoriously hard for small owner-managed businesses as more time can often be spent working ‘in’ the business rather than ‘on’ it. Taking time out to rebalance this (by joining The WOWW!® By Design Development Programme™ for example) is essential in the years preceding a business sale. • Profitability per client. Just like your clients, every buyer is looking to make a return on their investment. Therefore, how profitable each client is, or simply put, the size of their invested assets, will be a core criterion for almost every buyer. Apportioning your service offering to ensure that you are offering an appropriate service level to low net worth clients is important. And that you can demonstrate it. • A defined investment proposition. How financial planners develop their investment proposition is much debated within the industry – everyone has a different way of doing things. However, bearing in mind my first two points, your investment approach should be consistent, clear and auditable. Financial planning and investment management are two separate disciplines. If you are picking funds for a significant number of clients be prepared for a greater level of scrutiny during a due diligence process with a prospective buyer in future. The reality is that, post-sale,
PLANNING AND TIMING
How you have built your team and how client relationships are managed can make your business more - or less - desirable to a buyer
level of service are more likely to associate their relationship with the business than a single adviser, and therefore transition to a new organisation. This makes your business more attractive to a buyer. Take time now to think how broad your client relationships are across your business – a reliance on one-to-one relationships can be considered a point of risk to a buyer . All of this can be considered excellent business management – a core deliverable to firms going through the WOWW!® Programme.
Time is everything in planning – treating your business exit as a core element of your business plan over a number of years will allow you to control your exit and meet your objectives. Getting your business in shape 3+ years out and defining your goals for a sale is essential to this. As is building your team of expert advisers (accountant, broker and solicitor). You wouldn’t want your clients to manage their own financial plans, nor should you embark on this without advice!
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COMMON PITFALLS • Not questioning your ‘why’ • The blind leading the blind – not using professional advisers • Don’t forget buyer due-diligence – especially on small buyers who don’t have a proven track record • Not managing your own expectations, especially around the value of your business • Not putting yourself in the buyer’s shoes and considering their motivations CONCLUSION Selling your business is part of its lifecycle, and part of your personal journey. Taking time to plan and define this journey, with help from experienced advisers can transform the experience from being quite daunting into something as well executed as the business you’ve dedicated your time to build. WHAT NEXT? If you are thinking of selling your business in the next 3-5 years, your best course of action is to attend a Gunner & Co. workshop, to fully understand to process, followed by a business review by Standards International. This will allow you to define a realistic plan to maximise the value of your business at the point of sale. Contact Louise Jeffreys at Gunner & Co. (louise.jeffreys@ gunnerandco.com ) and Michelle Hoskin at Standards International (enquiries@standardsinternational.co.uk)
March 2020
About Louise Jeffreys Louise Jeffreys is the managing director of Gunner & Co., the specialist IFA mergers & acquisition brokerage and consultancy. Louise has worked with countless financial planners to develop exit strategies which align to their timescales, taking into significant consideration the needs of their clients, any team members, and the aspirations of the principal themselves. Through detailed business analysis Louise is able to match up business sellers with credible business buyers, using her network of experienced acquirers, enabling the buyers to realise fast growth in a mature market.
About Michelle Hoskin Michelle Hoskin (aka little Miss WOWW!®) is well known for her endless enthusiasm and energy, infectious personality and unique outlook on what she describes as a “magical profession”. With over 20 years’ experience working alongside some of the world’s most successful financial services organisations, Michelle is an internationally recognised author, speaker, coach and leading expert in the design and implementation of international framework-based best practice standards. Michelle is pioneering a drive towards increased professionalism and operational excellence through her continued work at Standards International – the UK’s premier certification body for British and international financial services standards – of which she is the founder. She also most recently led a sector committee whose objective was to develop and launch an exciting new international standard for professional paraplanners. Relentless in her pursuit of a global movement of change within financial services, Michelle is fully committed to supporting financial professionals worldwide to achieve things they only dreamed were possible, and to working with them so that they become the best possible version of themselves.
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March 2020
RICHARD HARVEY
LIVING IN THE FREE WORLD I’m free! No, it’s not the ghost of John Inman coming back for a visit, it’s the feeling that Richard Harvey is enjoying after his recent house move
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s recently reported in a previous IFA Magazine article, beckoning retirement has resulted in Lady H and I moving house, thereby dumping residual mortgage, car loan and a whole load of grief which comes from owning a 17th century cottage.
sure you can’t replace those wooden weatherboards with something more modern and robust, or the ancient roof tiles with a cheap and cheerful alternative from B&Q.
For estate agents, flogging period properties is a doddle. I mean who doesn’t love honeyed beams, inglenook fireplaces, mullioned windows and enough charm to persuade even the most wary purchaser to proffer their wallet and say: “Help yourself”?
To be fair, we loved living at Plough Cottage for almost 25 years, and tended it with the same care and attention we
The reality is that old houses need constant love and attention. And if the property is listed, your local authority will make
MOVING ON UP
A low-maintenance, high spec modern apartment offered not just an easier style of living, but also – taa-dah! – a debt-free existence for the first time in our adult lives
would offer a doddery old relative. It’s just that a low-maintenance, high spec modern apartment offered not just an easier style of living, but also – taadah! – a debt-free existence for the first time in our adult lives.
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In addition, the new home is just 100 yards away from the old, meaning we can continue to live in our lovely Kentish market town, one that has all the right values at its heart. You know the sort of thing – a handy Waitrose and Laura Ashley, and a steely determination to oppose any new housing development. However, acquiring this nirvana did come with a distinct challenge: the physical performance of the move. LET’S GET PHYSICAL Look, I’ve never been one for the gym. That knackering grunt ‘n’ grind, surrounded by earnest young dudes sweatily endeavouring to build the sort of buff physique which they hope will get them onto ‘Love Island’. My weekly exercise regime consists of a leisurely hour-long ramble on a Friday with folk of a similar vintage, all kidding ourselves this qualifies as ‘keeping fit’. What it does do is offer a nice cup of tea at the end, accompanied by a flaky pastry sausage roll, immediately replacing any calories which might have been shed along the way. Talking of which, it was comforting to read that a visit to the cinema apparently counts as a light workout, because it raises the heart rate for the duration of the movie. This comes from a study by University College, London, although the fact it was commissioned by Vue Cinemas might lead the more cynical among us to, er, question its veracity. But so far as the house move was concerned, I felt quite confident of surmounting any physical challenges it could pose.
March 2020
several boxes of books and assorted household stuff. That single day of bending and stretching re-shaped my body into a facsimile of the Hunchback of Notre Dame, barely eased later by the ingestion of several glasses of wine. Purely medicinal, you understand. Fast forward to moving day, and the reverse process of unpacking meant I found myself on my hands and knees slotting the books into a low-level bookcase and entirely incapable of getting up again. Resuming the vertical entailed an undignified process of rolling on my back like an upturned tortoise, grabbing anything adjacent to aid traction, and hauling myself upright with the sort of vocal sound effects normally only heard in adult movies (so they tell me). It was not as if I got involved in humping heavy furniture – that was undertaken with serene ease by a cheerful gang of professional removers. But some weeks later, and I’ve still not entirely recovered, although that might simply be a case of ‘tempus fugit’, and a realisation that I really ought to consider that gym membership. MONEY FOR NOTHING? Consolation, of course, comes in the knowledge we now have the facility to work our way through the collateral from the old house, and maybe at some stage even summon our IFA to advise us on equity release. Which I guess proves the old maxim ‘no pain, no gain’.
Reality check lay ahead though, and a bit of a marker showed up shortly before the move, when I packed up
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March 2020
I NSU RANCE DOCTOR
INSURANCE DOCTOR An IFA’s guide to Professional Indemnity insurance. Daniel West of Apex Insurance responds to some of the most common questions asked by advisers when it comes to the challenge of renewing PI insurance
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WHY AM I BEING ASKED TO COMPLETE YET ANOTHER PROPOSAL FORMFOR PI INSURANCE? IT’S ARDUOUS ENOUGH HAVING TO COMPLETE THE ONE FOR MY EXISTING INSURER? With the significant hardening of the market, it is now imperative insurers are provided with as full and detailed information as possible when first approaching them. It’s fair to say that the days of Insurers accepting short proposal forms, especially at renewal, are over. We have been approached by many firms who, due to completing a short proposal form, have been offered restricted cover from insurers. On receipt of a more detailed proposal, the Insurers were presented with a more detailed risk profile and subsequently amended their terms. IF THE PI MARKET IS SO DIFFICULT RIGHT NOW FOR IFAS, WHY AM I STILL GETTING SO MANY CALLS FROM COMPANIES WANTING TO QUOTE FOR MY BUSINESS? There are many commercial brokers who claim to be PI specialists, of which some of them are. However, there are very few who truly understand the PI market for IFAs. With the market as it is, it’s understandable that IFA firms may be attracted to an offer of a potential saving or promise that DBT (Defined Benefit Transfer) cover is readily available. A PI broker who truly understands the IFA market will have spent years building relationships with insurers and would be open with you from the start as to the current conditions in the market.
March 2020
MY PREMIUM HAS DOUBLED THIS YEAR AND I’VE NOT DONE ANYTHING DIFFERENT, IN FACT MY TURNOVER HAS REDUCED. WHY IS THIS? We are currently experiencing the hardest PI market seen for a long time. It’s not just IFAs who are struggling, but most industries in general. With restricted capacity and limited appetite, the cost of PI insurance is constantly rising. When choosing to test the market, I would suggest dealing with one specialist broker. One who has as much access to the insurer market as possible. As mentioned above, duplication may jeopardise your position with an insurer. MY INSURERS WANT TO APPLY A REDUCED LIMIT OF INDEMNITY FOR DBT WORK, IS THIS ALLOWED? The FCA Handbook requires IFAs to carry minimum levels of cover. However, we have seen policies which contain specific restrictions for DBT activities (for example; reduced limits of indemnity of £250,000 or £500,000). The director of ‘life insurance and financial advice’ at the FCA, has recently stated “Appropriate cover should not exclude relevant lines of business, such as defined benefit transfers. It should not include sub-limits, meaning that the cover falls below the minimum requirements and for example where financial advisers are IDD firms the minimum requirement is €1.85m.” We have worked with firms that have been asked to give up their relevant permissions if they cannot increase the inner limits and have found them appropriate cover.
Also, it’s worth noting that insurers have been known to decline terms to all parties when a proposal form has been presented to them by multiple brokers. I HAVE UNDERTAKEN DBT WORK, DOES THIS MEAN THAT I WON’T BE OFFERED RENEWAL TERMS?
About Daniel West Cert CII – Associate Director
This is certainly a possibility. Several insurers have recently changed their appetite on IFA risks and in some cases have left the market altogether. As an IFA specialist PI broker, we like to keep up to date with the ever-changing conditions in the market and as such are very proactive in our client renewal process. We suggest you start reviewing your insurance at least eight weeks prior to the renewal.
As an independent broker, Apex can offer one of the most extensive choices of IFA insurers available, with specialist sector and product knowledge to offer their clients some of the best terms available in the market. Their extensive IFA insurance experience allows them to fully understand your business, advise how to best present your risk and what insurers are best suited to your firm.
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Daniel has been with Apex Insurance Brokers for 5 years and specialises in the placement of IFA and Financial Institution Professional Indemnity Insurance (PI).
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POWE R OF PARAPLAN N I NG
March 2020
THE POWER OF
PARAPLANNING At IFA Magazine, we are constantly impressed by the tremendous efforts, enthusiasm and dedication shown by the paraplanning community to develop initiatives to build the financial planning profession and to improve the service which clients receive. This month, we are grateful to Caroline Stuart who, on behalf of the PFS Paraplanner Panel, highlights some of the exciting things which 2020 has in store for paraplanners and also shares her perspective on why paraplanning is such a power to be reckoned with.
F
irstly, I’m pleased to report that The Personal Finance Society (PFS) Paraplanner Panel has some brilliant news. The Purely Paraplanning Roadshow is back and as usual, we’re visiting six locations around the country. This year we’re off to Cambridge, East Midlands, London, Bristol, Edinburgh and Manchester; all the dates are on the Personal Finance Society events website page. I really enjoy the roadshows; I get to meet paraplanners from all over the country, in a wide range of businesses and all at different stages of their career. Each brings different views and experiences and this, coupled with our top quality agenda and speakers, always make these events a roaring success. If you can, they are well worth attending and the time out the office. FIVE YEARS ON I joined the PFS Paraplanner Panel when it began in March 2015 and I’m really proud of what we’ve achieved. We’ve
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helped organise some terrific events for paraplanners, which get increasing attendance every year; we’ve set up a range of channels to speak with paraplanners and, something I’m particularly proud of, we’ve created the ‘Getting Started in Paraplanning’ booklet to help people new to or considering joining our profession. LEARN. FIX. SHARE Getting involved with these sorts of things really began for me when I went to the Paraplanners Powwow in 2013. The brainchild of Richard Allum and Ian Thomas, it began as an ‘unconference’ with the purpose of bringing together a group of paraplanners to share ideas, learn from one another and help make things better. This is the very motto of the Powwow; ‘Learn. Fix. Share.’ Writing this article has got me thinking back over the last seven years and my involvement with these two groups and, hopefully without sounding too melodramatic, how they really have changed my life.
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In 2013 there were hardly any events specifically for paraplanners. There were many we could go to of course but they were usually geared for the needs of advisers rather than paraplanners. I’d always feel a bit awkward and out of place; a peanut in a packet of crisps
We’ve a huge choice now, but in 2013 there were hardly any events specifically for paraplanners. There were many we could go to of course but they were usually geared for the needs of advisers rather than paraplanners. I’d always feel a bit awkward and out of place; a peanut in a packet of crisps. I never wanted to ask a question or speak up in case I made a mistake or looked foolish.
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The Powwow changed all that; here I was with a bunch of people with the same job and challenges as me and were probably all also wondering just what the heck they were doing in wellies, in a Teepee, in a Northamptonshire field. High on sugar from the Haribo and chocolates that peppered every corner of the tent and buoyed up by knowing these were people just like me, I spoke up for the very first time. No-one laughed or chastised me for being wrong and no-one made me feel like I didn’t have something to contribute. ONWARDS AND UPWARDS Flushed with confidence from the Powwow, I started to volunteer for things and getting involved. I helped organise regional Powwows, hosted campfires at the national one and joined the PFS Panel. In 2017 was thrilled and touched (shocked and terrified) to be asked to host that year’s main Powwow. I felt very reluctant at first. Taking on something as loved, and it really is loved, as the Powwow is terrifying. What if I mess it up and spoil it or make a complete fool of myself? I’m not a natural public speaker so it was daunting but given all the help and learning I’d gained from the Powwow over the years, I couldn’t say no. Powwow day came and although I was very nervous, I loved every minute of it. When you’re at a paraplanner event, it feels like you’re among friends with everyone wanting you to do well. That’s why I try and attend as many paraplanner planner events as workload and diary allow. I also like to think I made reasonable fist of it! They invited me back the following year, so I’m assuming I did ok! Knowing that has also given me the confidence to really grasp opportunities when they arise. If I hadn’t got involved with the Powwow and the PFS Paraplanner Panel, I’d never
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It can be a step into the unknown to get involved with something new, particularly if, like me, you aren’t a natural ‘networker ’ and feel a bit dazzled and spooked if you’re in the limelight, but it really is so worth it.
have dreamed of applying to join the Personal Finance Society Board of Directors. Going through the stringent selection process and then being offered a place on the Board to help represent their paraplanner members, was really one of my proudest moments both professionally and personally.
wouldn’t and couldn’t have done without the help and support of the fantastic network of amazing friends and colleagues I’ve met through volunteering with these groups. I really feel I’ve gained much more than I’ve ever put in, which spurs me on to do more to try and balance this out. It can be a step into the unknown to get involved with something new, particularly if, like me, you aren’t a natural ‘networker’ and feel a bit dazzled and spooked if you’re in the limelight, but it really is so worth it. There are lots of opportunities to help within our profession and beyond. There’s the Paraplanners Powwow, NextGen Planners and the PFS have a host of initiatives to help both your peers and the public. You can find all the details on their various websites. Volunteering and getting involved is really rewarding and can be great fun but most importantly, will help us grow and develop from an industry to a well-respected Financial Planning profession.
Volunteering with the PFS on the Paraplanner Panel, the Board, and more recently with the Connect Mentoring programme, along with helping with the Paraplanners Powwow not only quite radically changed my professional path, it has also changed me personally. I’ve gone from someone who would never speak at an event to, and I’m actually (quite proudly) quoting here, ‘a bit of a talker’. When I think back on why I got involved with the Powwow, it was because I’d really enjoyed myself with these welly clad, Haribo munching folk and thought it would be a lot of fun. I could never have known by volunteering with them and then the Personal Finance Society, I would gain so much. WE’VE GOT THE POWER Getting involved with paraplanning groups has given me the confidence to set up my own business, something I
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About Caroline Stuart Caroline has been working in financial services for twenty years. Seventeen of those have been in paraplanner, senior paraplanner and Head of Technical roles, until she set up her outsource and consultancy business, Sparrow Paraplanning last year. Caroline is also a Fellow of the Personal Finance Society, is a member of its Paraplanner Panel and has sat on the Board of Directors since 2018.
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March 2020
TONY CATT
CONFUSED ABOUT
SM&CR?
What are the practical implications of the Senior Managers & Certification Regime for individuals working within adviser firms? Compliance Consultant Tony Catt gives a practical take on the details you need to know
A
s we all know, the Senior Managers & Certification Regime (SM&CR) came into force on 9th December 2019 for all UK financial services firms. That much is straightforward but what does the regime mean for practitioners? What are the details you need to look out for? Here is a summary of some of the implications which firms are likely to find useful as a reminder or as an alert to take appropriate action where needed. COMPLIANCE OVERSIGHT AND MLRO FUNCTIONS In solo-regulated firms, the SM&CR does not introduce any new requirements for firms to create a Compliance Oversight function or a Money Laundering Reporting Officer (MLRO) function. The rules about which types of firm are required to have these functions remain the same as under the Approved Persons Regime (APR). Approval to hold a Senior Management Function (SMF) is required only where the function exists in the firm. CF30 ADVISERS The first thing that many people will notice is the disappearance of all the CF30 advisers from the FCA register. Only Senior Managers, such as directors, compliance officers, MLROs still appear on the register.
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What my not be so widely known is that the Certification Regime does not apply to Appointed Representatives. So, any CF30 advisers linked to an Appointed Representative firm do still appear on the registers as CF30s under the principal firm. I had to call the FCA to clarify that point!
The first thing that many people will notice is the disappearance of all the CF30 advisers from the FCA register
DIRECTORY PERSONS So, having disappeared from the register, all advisers will appear as Directory Persons when their firms have input their details on the Connect system. However, the directory is not yet published and is unlikely to be published until much later this year. For many months, it will not be possible to search for advisers on any system. I have actually input some people onto the directory. This is quite simple on the Connect system. But weirdly, after the
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application is acknowledged, there is no further action at this time as the directory is not currently published.
• You need to identify the individuals within your firm who need to be certified on an annual basis.
When you go into “Directory Person” you have the choice to add or amend or end date directory persons. It is important to remember that once a directory person has been added, their information needs to be kept up to date.
• Ensure that the annual fitness and propriety checks for Certification staff and Senior Managers fit into your firm’s existing HR and other processes.
The “directory person” details start with their FCA Individual Reference Number (IRN). If the person does not have one, on first registration, then one is generated by the system. This will apply to mortgage advisers and customer-facing administration staff who will be put onto the directory in future.
REGULATORY REFERENCES AND CRIMINAL RECORDS CHECKS
There is a list showing the duties that can be applied to the directory person. This covers administration and advising and also a box to tick if the person is a supervisor of another directory person. There is also a box to tick if the person is performing any functions that require qualifications and ticking that box leads to a further menu where all the qualification held by that person can be ticked. In the future, it will be possible to see what a person is supposed to be doing and also to check whether they are qualified. That will be a lot more useful than just seeing whether somebody appears on the register. THE CERTIFICATION REGIME AND FITNESS AND PROPRIETY CHECKS Now that the decision to appoint and regulate advisers has been devolved back to firms, it is important that firms are able to undertake the necessary due diligence on their personnel.
Now that the decision to appoint and regulate advisers has been devolved back to firms, it is important that firms are able to undertake the necessar y due diligence on their personnel
• Assess how the Criminal Records Checks and Regulatory Reference requirements fit into your firm’s existing recruitment processes •
Ensure that your firm has the appropriate processes to obtain Criminal Records Checks for new Senior Managers and confirm your firm is registered with the DBS, Disclosure Scotland or Access NI (as relevant)
•
Ensure that your firm has the appropriate processes to obtain and provide regulatory references (see pages 40-41 of SM&CR Guide for solo-regulated firms (PDF) for more information)
CONDUCT RULES TRAINING My first reaction to seeing this was to think that surely everybody knows the conduct rules! However, it seems with the expanding directory and the regimentation of duties and responsibilities, there are more people who need to understand and apply the conduct rules to their daily routines. There are 5 rules listed that apply to all personnel and a further 4 that apply to senior managers as you will see below. I should add that there are some quite good training courses available to enable everybody to understand the conduct rules and their effects. FIRST TIER – INDIVIDUAL CONDUCT RULES 1. You must act with integrity 2. You must act with due care, skill and diligence 3. You must be open and cooperative with the FCA, the PRA and other regulators 4. You must pay due regard to the interests of customers and treat them fairly
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5. You must observe proper standards of market conduct SECOND TIER – SENIOR MANAGER CONDUCT RULES • SC1. You must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively •
SC2. You must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system
•
SC3. You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively
• SC4. You must disclose appropriately any information of which the FCA or PRA would reasonably expect notice
It is bizarre that even after the RDR and MiFID II, the regulators still feel the need to remind and enforce the message to the financial services industr y to Treat Customers Fairly
They still come down to basic honesty and the professional performance of your duties to provide a good service to clients. It is bizarre that even after the RDR and MiFID II, the regulators still feel the need to remind and enforce the message to the financial services industry to Treat Customers Fairly.
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Once again, I wonder whether this should have been undertaken on a more joined up process. Originally, the FCA was going to get rid of the register and only stepped back from that plan when various people highlighted the error of their ways during the consultation process. It seems unbelievable that the FCA did not understand the importance of the register to consumers. In which case, why did it bother to collate the register in the first place? As it is, we will have a gap of several months between the advisers disappearing from the register to re-appearing on the directory. The good news is that the directory will give far more focussed information on the individuals and should provide some really useful detail for consumers about their current or prospective advisers. The Connect system for adding directories can be used on an individual basis or by uploading spreadsheets of personnel. It must be good for firms of all sizes. Since the onus will be on firms to keep the directory information up to date. I wonder whether it will ever be entirely accurate and maintained. It will probably need some high profile companies to fall foul of the regulators and be fined for all firms to take their responsibilities serious and magic up the capacity to give this issue the attention that it will need in future.
About Tony Catt Formerly an adviser himself, Tony Catt is a freelance compliance consultant, undertaking a whole range of compliance duties for professional advisers. Contact Tony info@tonycatt. co.uk or call 07899 847338.
CONCLUSION The FCA is very keen for the Senior Managers & Certification Regime to have a positive effect on financial services firms to enable them to provide better quality services to customers.
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March 2020
DE FAQTO
BREAKING DOWN THE COMPLEXITY IN DEFINED CONTRIBUTION (DC)
PENSION SWITCHING We talk to Richard Hulbert, Insight Consultant (Wealth) at Defaqto to get his views on how advisers and paraplanners can improve their approach to pension switching in order to demonstrate that suitable advice has been given
L
ast year, pension switching came under increased scrutiny when the Financial Conduct Authority (FCA) found that less than half of the transfer recommendations which they had reviewed were suitable. Traditionally, when giving pension switching and consolidation advice to clients, a key challenge for advisers is that more often than not, one tool and system needs to be employed in the process to ensure that a suitable and compliant outcome is achieved for the client. As the demand for advice on pension transfers continues to rise, so too does the regulatory scrutiny around them. Pension switching is a complex matter. To put this into perspective, the process advisers (and paraplanners) commonly follow when making a pension switch recommendation is as follows: 1. Fact find and data entry into CRM 2. Risk profiling and data entry into CRM 3. Consolidation of findings and data entry into a cashflow modeller 4. Fund research and data entry into a research tool 5. Product(s) and provider(s) research and data entry on a different research tool
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6. Consolidation of research and findings via data entry into CRM 7. Production of suitability report(s) and copying into CRM 8. Transact business and data entry into CRM For many advisers, this process involves the rekeying of data into at least three different systems. This inefficiency can be costly to the business and increases the opportunity for errors. A STREAMLINED APPROACH To better navigate this, advisers should look to implement a solution which moves the process from being an arduous re-keying of data across different systems to one compliant, straight-through process that can be completed within minutes rather than hours. As the demands and pressures on advisers continue to evolve so too does the technology available to them. More advanced financial planning tools, now allow advisers and paraplanners the scope to review their client's existing pension arrangements within one system that covers all of their financial planning needs.
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The right financial planning technology should introduce seamless research, platform, product and fund selection. With this functionality, advisers can compliantly assess if a client should switch out of their current defined contribution (DC) pension scheme or stay where they are
The right financial planning technology should introduce seamless research, platform, product and fund selection. With this functionality, advisers can compliantly assess if a client should switch out of their current defined contribution (DC) pension scheme or stay where they are. Technology can go a long way to support an adviser’s current advice process. A truly end-to-end financial planning tool will offer a variety of workflows, tailored to meet the needs of specific groups of clients. Looking
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specifically at pension switching, advisers should look for a solution that equips them with a compliant workflow, inclusive of robust research and an FCA-approved reporting capability. With the right technology solution, advisers will not only create time efficiencies and cost savings but they’ll also be able to standardise processes with an automated audit trail evidencing that due diligence has been performed and that suitable advice has been given to the client.
About Richard Hulbert As an Insight Consultant (Wealth) at Defaqto, Richard covers retail financial products and their distribution, notably investment bonds, platforms and pensions, including autoenrolment and at-retirement options. His key responsibilities include reviewing, developing and producing financial research, the Defaqto Star Ratings and bespoke case studies for providers and intermediaries – much of which is CPD-accredited to support financial advisers' professional development.
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KI NG AN D SHAXSON
LEADING THE WAY Many things have changed over the last ten years. Few are more prominent than the continuing rise in the awareness and popularity of investing in a way which benefits humanity and the environment in which we live. Marking the ten year anniversary of their ethical model portfolio service, Sue Whitbread talks to Wayne Bishop, CEO of King and Shaxson Asset Management, about the changing market and why he is so positive about the future prospects for responsible investing and also the model portfolio approach.
IFAM: Firstly, congratulations on celebrating the first ten years of your Model Portfolio Service – how has the market changed over that time? WB: Thank you. Our ethical model portfolios (MPS) were launched in February 2010 and can be accessed through various platforms. Since then, we’ve seen substantial changes in the market. Ten years ago there were a small number of platforms offering a Managed Portfolio Service and the concept was still considered a relatively new idea back then. Nowadays it has become common practice with a large number of platforms available. The rise of passive investing has had a big impact on what goes on in the market in general, but not necessarily on what we do. One particular change that we’ve seen is that when we first brought out the product we would use a number of exchange traded funds (ETFs). MIFID II has made ETFs more difficult for some advisers and platforms to justify on some of the products so we have stopped using those.
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We’ve also seen some issues with the ethical application of stock borrowing and lending on that front. The MPS concept itself has become widely accepted and widely embraced by the IFA community. It represents an efficient and effective way of providing their clients with a properly diversified portfolio without the need for the adviser business having to get involved in the detail of the day to day asset allocation and fund selection decisions.
Over the last five years we’ve seen ethical models generally outperforming conventional portfolio models and with lower volatility
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Whilst the running of conventional model portfolios can often be feasible for an IFA business to manage inhouse, when it comes to an ethical and SRI model it can be quite difficult to do. There is so much more detail to have to look at, particularly as regards the different types of holdings within the funds and the ethical acceptability of those holdings. It requires many additional research processes and we believe that this will continue to evolve. We do not know how many platforms there will be in a few years’ time of course and how much more consolidation will occur. One thing we do know is that the whole acceptability of MPS has now been widely embraced. We’re also seeing costs coming down both from a platform perspective and from a management perspective making it an even more attractive product for advisers to consider for their clients. Our length of experience in this specialist arena is a major factor in our success.
with their clients’ full discretionary mandates so the MPS was a logical extension and a good fit. Clearly, this new fund of funds portfolio would be designed to meet the underlying clients’ ethical values as well as risk/return objectives. This involved us investing in underlying funds which were not only appropriate for inclusion in an ethically balanced portfolio but also funds we had properly researched as meeting our specific objectives. At the time, we found that the universe of acceptable funds was fairly limited. We have seen this grow significantly over the years. Our proposition has always been to provide a robust, ethical product that would meet the requirements of our underlying investors and also which they could easily understand. It is important to us to safeguard our investors’ interests by applying a disciplined and thorough process of research into funds as well as to the investment houses which operate those funds. We continue to do this today.
As we would expect, there has been increased competition coming into this space over the years. We generally find that these products tend to be more quantitative-based which sometimes does rather miss the real heart of the matter when it comes to ethical investing, and that is what is desirable for the client.
Following on from this, we subsequently designed another range of Model Portfolio Services which involved a blend of direct equities and REITs as well as funds, for another group of IFAs. This has continued and is known as our Direct Equity Portfolio Service. We’re able to be slightly more adventurous on our ethical stance here. For example, when it comes to property investments, we could have REITs which focus on social housing, affordable rental housing and medical properties rather than conventional rights which are just available in the open ended market.
Interestingly, over the last five years we’ve seen ethical models generally outperforming conventional portfolio models and with lower volatility. This has a lot to do with the oil price and general commodity prices which add volatility to the market and have generally underperformed. These have historically been core holdings in many conventional portfolios and indices. However, this means that a client no longer has to consider sacrificing returns in order to pursue an ethical investment mandate. IFAM: Can you give us a brief outline of the King and Shaxson MPS proposition? WB: If we step backwards a little here, it all started for us just over ten years ago. We were approached by a number of ethically-minded IFAs who wanted a model portfolio management solution for their smaller investment clients and one which had an ethical mandate at its core. They also wanted it to be accessible through wraps and platforms. Importantly, they were already entrusting us
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IFAM: How has the MPS evolved to suit differing client needs? WB: The big change for us has been the growth in the universe of acceptable stocks. Many new ethical funds have come to market although, if I’m honest, some of these are just greenwash. Even today, we still see some companies bringing out funds which contain relatively large holdings in global oil companies for example and some even hold gambling stocks. On the whole, most fund groups now have some ESG offerings. We’ve also seen a rise in the number of positively-positioned impact funds, whose focus is to invest in order to meet the requirements of the United Nations’ 17 Sustainable Development Goals. These impact funds appeal to more
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positively-focused ESG investors. With so many more funds with a Global ESG approach and far better ethical and SRI/ESG criteria which are well managed, it means we have a much broader fund universe available to us. All of this has meant that our range of portfolios has continued to evolve over the decade and is extremely well positioned to capitalise on all the investment opportunities which are now present. IFAM: How is your strategy positioned? Do you see the MPS as having a particular target client segment? WB: Yes there is. We position the MPS for those clients who typically will have less than £250,000 to invest and where CGT should not become a major issue in the investment mix. Above this of course, we offer a more bespoke service which is ideally suited to the needs of larger investors. As we’ve already discussed, the MPS is purposely focused on ethical considerations. What we’ve learned over the years is that when clients become interested in the idea of ethical investment, they tend to get much stricter with their ethical criteria over time as their experience of investing this way grows. For us, it is far more important that the client continues to trust their adviser and for us, as well as being trusted to manage the investment proposition, we also need to be trusted to meet the ethical criteria too. Therefore we have often taken a more cautious approach to investment which has ethical selection right at its heart. This way we can have confidence that it will lead to better outcomes for the clients on both investment and ethical grounds. Our five models are risk-based, ranging from cautious to adventurous and are designed to suit different clients’ with a range of risk and income requirements. It is still the case that the more ethically-driven is the focus of a particular strategy, then the higher the corresponding risk involved with that strategy becomes. So, in essence, darker green portfolios will therefore have higher risk profile than lighter green.
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IFAM: How do you manage risk within the portfolios? WB: We manage risk primarily through our asset allocation strategy. It’s an important aspect and one where we like to go into great detail. For example, in the fixed income arena, we will move between index-linked and conventional holdings. Going deeper into this, within the conventional arena we will then make decisions on the merits of higher grade bonds versus lower grade corporate bonds. Duration of bond funds is also an important factor for consideration. In the past, we’ve included two index-linked funds which didn’t have a specific ethical mandate. However, through our deep-dive of the funds’ holdings, they still met the ethical criteria and therefore were included for a time. This helped reduce the overall risk on the portfolios. As this highlights, we always look in great detail at the underlying holdings of every fund which comes across our radar as a possible and eligible investment so that we can ensure that the overall portfolio accurately meets our objectives. After all, it’s those holdings which are the real truth, and in turn the reality of the portfolio. The geographical allocation is considered too, not just for a particular company’s country of listing but also where that company makes their money. For example, many of the UK’s largest companies derive most of their profits from overseas and therefore we need to consider that risk. This has contributed to our portfolios demonstrating lower volatility when compared to broad market indices. IFAM: Looking ahead, what do you see as the main challenges for the MPS and the market in which it is positioned? How are you looking to overcome those? WB: We see greenwash as a major challenge going forward as almost every major company strives to justify its approach as ethical. Some companies we have seen have made some very genuine progress. A good example
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We see greenwash as a major challenge going forward as almost ever y major company strives to justify its approach as ethical
of this is Danish Oil and Natural Gas, a company which successfully transformed itself into Orsted, a renewablesled utility which became one of the biggest owners of renewable assets in the world. However, in other cases we are concerned to see that companies are spending a lot on PR campaigns but they are doing very little in reality. Some of the oil majors are examples here. To us, maintaining a clear ethical stance and a good understanding of what our investors actually want is paramount. Ethics are dynamic after all. Just five years ago, fossil fuel companies were perhaps viewed more positively than they are now. It’s a classic example of how people’s opinions may also change.
Evidence is now backing this up, that companies which focus on sustainable strategies actually perform better for investors
So to sum up, we view our approach as having two criteria instead of just one. Both of these are hugely important. Firstly, we aim to deliver attractive investment returns for
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our investors – a principle which also applies to any of the third party fund managers we use. We then overlay our focus on sustainability and responsible investment criteria. We see good corporate governance as a sign for good companies. Evidence is now backing this up, that companies which focus on sustainable strategies actually perform better for investors. Of course, performance will differ over time especially as oil/commodity prices still have a big impact on conventional indices but much less so when it comes to ethical portfolios. Whilst we must expect performance to be different to the broader market, we can rest assured that we know why those differences are there, as will our investors, and that we can continue to deliver attractive returns for investors across all our portfolios and of course meet their ethical criteria.
About Wayne Bishop With over 27 years City experience in both London and Frankfurt, Wayne started the Ethical Asset Management service in 2002. He introduced active asset allocation and a positive return mentality to then predominantly UK based equity portfolios. He is the lead manager on the personal discretionary and model portfolio services. Having studied both Business and later Theology at University, he has a clear understanding of the need for successful businesses that contribute to the wellbeing of our planet and its entire population. Wayne is now CEO of King & Shaxson Asset Management.
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THE LOST ART OF
COMMUNICATION Communicating effectively with clients and peers is an essential component for successful financial planning firms. But are you using it to best effect? Tracey Underwood of PACE Solutions looks at how and why giving extra thought to the way you communicate can bring powerful benefits for your client relationships and business success
O
ver the past few decades, the nature of the financial advice service provided for clients has changed significantly – and for the better in my view. Historically, the role of a financial adviser would often be about seeing as many clients as possible, selling them a product and then never seeing them again. That’s not a particularly compelling business model. So, let’s fast forward to today’s world of professional financial planning service and let’s be grateful for the many changes and developments which have taken place over the years. Nowadays, professional financial planning is all about delivering a high quality, client- centric service. It is designed to ensure that the client’s financial affairs are appropriately organised so they are on track to meet their goals and objectives. This means a lifelong commitment between client and adviser and, as such, requires a high quality service proposition to back it up. Effective communication is central to all of this.
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BACK TO BASICS An important part of the work I often do with financial planning firms is to ensure that their team is properly trained on how to communicate effectively with clients and potential clients and in a way which is in line with the company brand. Teaching communication skills may sound like a back to school approach but can anyone ever recall how they were taught to answer the phone, write an email or construct a report? I often find that there is a reluctance to pick up the phone and actually call the client. Email tends to be the preferred communication method; it avoids potentially awkward conversations and pressurised moments. However, have we ever thought about how receiving an email may be perceived by a client? What do you lose in the simple decision to email rather than call a client? A colleague I once worked with always wrote his emails WITH HIS CAPS LOCK ON. It always seemed to me that he was shouting or annoyed, however the opposite
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was true, he was just unaware that this was how it was perceived. For the support team, most outgoing correspondence can be templated so that it conforms appropriately into the house style. But does your team know what the house style is? Have you thought about it? Do you care? How you correspond with a client directly affects that clients’ perception of quality and the attention to detail you are giving to their situation. If you can’t get your communications right, what confidence does the client
If you can’t get your communications right, what confidence does the client have with you managing their money?
have with you managing their money? Everything you say or do has to feel right and hit the right note. Get it wrong, and client trust and relationship-building suffers. It is very important that you ensure your report templates are all set to the same high standard and that checks and controls are in place. Instances where the start of a client’s report is in one font and then changes to another partway through or, even worse, the report is addressed to Helen but finishes with a thanks to Sarah – an example of cutting and pasting at its worst – are to be avoided at all costs. One of the bad communication examples I have seen was from a firm that previously dealt with my own investments (note I say previously). The firm sold their client base to another IFA and I received a ‘welcome’ letter from said new IFA. What the letter said to me was that they didn’t really
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March 2020
care about my business. Why? For starters, my name was spelt incorrectly. There were also several typos in the letter and it was printed on what I could only describe as close to low brand toilet paper. Maybe it was intentional, they didn’t want my business and their quality clients received quality paper? My instincts tell me that wasn’t the case. What it did tell me was that this was not the firm that I wanted to work with thereafter. They simply didn’t meet the right standards. SO WHAT DOES GOOD LOOK LIKE? When engaging with a client we know that the financial planning and advice process from letters of authority to business being transacted can take several weeks. And that’s just the start of things. To build a sound, long term working relationship with the client, it really helps to ensure that you assign a paraplanner and administrator to the client as soon as practicably possible. Throughout the process they can check in on progress, letting the client know what information has been received, expectations of other information and so on. This impresses the client, giving them reassurance that the firm is on the case and that their affairs are in the good hands of a team who really understand them and their needs. They are not left wondering what is happening and therefore having doubts about whether they have selected the right firm to work with. GETTING IT RIGHT Your first line of communication is generally through front of house or the administration team. Getting this right is essential and should not be left to chance. All team members should be properly trained on answering the phone positively and in the ‘house’ style. It makes a huge difference. Just think about your own experiences of good
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BETTE R BUSI N ESS
and bad when it comes to customer service. It’s not difficult to do but you do have to put in the time and effort to get it spot on.
We can all recall a time where a message has been put through to us in the office, only for us to find out the administration team could have dealt with the enquir y ver y easily indeed
The attitude of the person making the call is also important. If the team member is happy this will be reflected in their voice. Bored, disinterested employees are an immediate put off for clients. You’ve worked hard to get this far, it would be a mistake to undermine all that good work because you haven’t got the simple things right. For example, one simple step you can take is to ensure that there should be a company standard for number of rings before your phone is answered. Aim for 3 rings, no one likes to be left holding on. Make sure this is reinforced with the team buying into its importance and focusing on achieving it as a priority. Text messaging is now being used for communicating with clients. If a client can’t be reached by phone then a simple text message perhaps reminding them to return a form for example, would be sufficient.
has been put through to us in the office, only for us to find out the administration team could have dealt with the enquiry very easily indeed. By taking ownership of the call initially, the situation can be handled quickly and easily by the person in the team best suited to deal with it there and then. That will impress the client as well as be more efficient for your business. CLOSER TO HOME Finally, don’t forget that our customers extend to members of our own team too. So, think about what you do and how you communicate and engage with your team members. Don’t deluge them with emails about spare bottles of milk in the fridge, the post arriving etc. Issues such as this can be dealt with by way of a simple conversation. You can pick up far more from talking to people than you can from sending them an email. Building a strong working relationship within the team relies on having strong lines of communication in place. As an old advert used to say “It’s good to talk”. I couldn’t agree more. About Tracey Underwood Tracey is the owner and founder of PACE Solutions. The business provides support for financial planning firms by focusing on operational practices including; recruitment, compliance, processes, client proposition and business strategy. This is achieved not only through a consultancy process but by hands on implementation to ensure that firms achieve effective results that would otherwise not be achieved through consultation only.
Train your team to take ownership of the call and all communication. We can all recall a time where a message
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CAREER OPPORTUNITIES Position: Financial Adviser Job Ref: 58617 Location: NORWICH
Salary: £40,000 - £50,000 per annum
The firm of IFAs is looking to take on a Financial Adviser to assist a more experienced adviser. Existing clients and leads are provided. The firm is looking for the candidate to show an eagerness to progress and build up the existing client bank. In addition to a very competitive salary, they also offer a discretionary bonus.
What’s needed for me to be considered? •
Level 4 Diploma qualified in Financial Planning or close to completing this
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Experience working within a similar role
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Demonstrate extensive advising knowledge
Position: Financial Adviser Job Ref: 58608 Location: COLCHESTER
Salary: £40,000 - £60,000 per annum
This is a reputable firm which prides itself on the high level of advice it offers. In addition to a very competitive salary, they also offer a discretionary bonus.
What’s needed for me to be considered? •
Level 4 Diploma qualified in Financial Planning or close to completing this
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Experience working within a similar role
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Demonstrate extensive advising knowledge
Position: Paraplanner Job Ref: 58606 Location: NOTTINGHAM
Salary: £25,000 - £45,000 per annum
The opportunity for an experienced paraplanner to join a fantastic financial services firm which focuses on finding financial solutions for top tier professionals and entrepreneurs exiting private equity backed business.
What’s needed to be considered? •
Level 4 Diploma qualified or working towards this is desirable/ or relevant industry experience
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Previous experience within a fast-paced IFA Practice
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High level of analytical capability and good communication skills
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Good pensions & investments product knowledge
Position: Paraplanner Job Ref: 57718 Location: WALTHAM CROSS
Salary: £32,000 - £38,000 per annum
This bespoke financial advisory practice also deals with discretionary fund management. They are ideally looking for a paraplanner looking to take the next step up. You will benefit from full back office support, exam support and progression opportunities into becoming an IFA.
What’s needed for me to be considered? •
Qualified or working towards level 4 diploma is an advantage
•
Excellent communication skills, both oral and written
•
•
Previous experience within an IFA practice and paraplanning is essential
FCA understanding of regulations and products, and their practical application
Position: Financial Adviser Job Ref: 55138 Location: CHESTER
Salary: £35,000 - £45,000 per annum
This is a well established independent financial advisory practice which is looking for an adviser to join their team. Leads and a strong paraplanning and administrative team are provided plus study support for further qualifications.
Skills: •
Level 4 Diploma Qualified
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Previous experience in an adviser role
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A high level of confidence, sales & presentational skills and interpersonal skills are also key
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The ability to approach all tasks with a positive attitude, presenting yourself in a professional manner in line with the expectations of the practice
Position: Investment and Protection Manager Job Ref: 58429 Location: COVENTRY
Salary: £55,000 - £65,000 per annum
This is a well established independent financial advisory practice which is looking for an adviser to join their team. Leads and a strong paraplanning and administrative team are provided plus study support for further qualifications.
Position: Compliance Manager Job Ref: 58684 Location: LONDON
Salary: £70,000 - £75,000 per annum
A senior compliance professional is required to join a well-established wealth management which prides itself on maintaining long-lasting relationships with their business partners and clients. You will be working within a friendly environment and provided with full support.
Skills: •
Compliance background - ideally ceMAP qualified
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Experience in a compliance role within a financial services firm
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Excellent regulatory knowledge
Position: Financial Adviser Job Ref: 58568 Location: LIVERPOOL
Salary: £35,000 - £60,000 per annum
A senior compliance professional is required to join a well-established wealth management which prides itself on maintaining long-lasting An independent firm of wealth and financial planners are looking for financial adviser with a professional and level-headed approach to put their own spin on a role within a well-established, fantastically branded firm.
What’s needed for me to be considered? •
Hold previous experience within an IFA / Financial Planning Practice
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Must be qualified to a minimum industry standard of Level 4 Diploma, ideally Chartered or working towards this.
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Previous experience dealing with High Net Worth Clients desirable but not essential
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A strong understanding of pensions and investment products advantageous
Dan Gratton - Specialist Financial Planning Recruiter I have been recruiting within the financial planning field for just over 2 years now, largely specialising within the placement and recruitment of financial planners and senior back office roles. Prior to this, I was working in the industry for 5 years, as an Associate Financial Planner, so like to think I am somewhat knowledgeable on both the industry and those in it! A lot of people believe that the job hunt on the build up to Christmas can be quite slow, however we have found quite the opposite, with last December being our busiest month to date. It seems companies are very keen to get their recruitment needs in order, prior to the new year, so there may never be a better time for you to start your search. You will see below that we have a number of opportunities that we are working on at present and many more on our website should you be open to new opportunities. Furthermore, should you just wish for further information on the IFA job market at present, opportunities locally or industry information on qualifications etc, please do not hesitate to be in contact. You can reach me on 0117 922 1771 or feel free to email me at dan.gratton@heatrecruitment.co.uk.
What’s next? If you are interested in any of the above opportunities, please contact us directly. If suitable, one of our specialist consultants will be in contact with you to discuss the opportunity in detail prior to submitting your Curriculum Vitae to the client. During this discussion, we will aim to identify your specific skills and motivations and, where appropriate, can also recommend other relevant opportunities to you that match your requirements.
And finally… If these specific vacancies are not exactly what you are looking for, please contact us to discuss other opportunities we may be recruiting for that aren’t necessarily advertised.
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Visit the Heat Recruitment website for more details of these and hundreds of other jobs too www.heatrecruitment.co.uk
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