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The new editor of <i>International Adviser</i> introduces this month’s edition
Each month International Adviser brings together industry voices and insights to help financial advisers around the world work towards better client outcomes.
For the June edition, we have introduced an additional regional segment that looks back at recent developments and the biggest stories of the month.
Our Best Practice article covers rising global professional standards and comes from the Chartered Insurance Institute, while a Technology Briefing from The Lang Cat focuses on disruptive platform upgrades.
Blevins Franks offers top Tax Matters tips for those planning to retire to Europe and AAM Advisory provides a Masterclass on living in multiple overseas jurisdictions before returning home to retire.
Our Financial Planner profile takes us to South Africa, with Morningstar giving us Investment Insights into UK equities.
Deadlines are closing for the Best Practice Adviser Awards 2018 – don’t miss the opportunity to get your company and team recognised for their excellent work.
Kirsten Hastings, editor,
Buying professional indemnity insurance in the UK is now costly and problematic for \advisers offering defined benefit pension transfer services, says Tom Carnegie
‘There has never been a more important time for scheme members to get robust advice before a transfer’
Craig Stokes, head of pension transfer advice,
Pension Advice Specialists
With increased regulatory scrutiny and rising premiums, advice firms that offer defined benefit (DB) pension transfer services are finding it increasingly difficult to obtain professional indemnity insurance (PII).
‘A number of insurers withdrawing from the IFA PI market [are] making an already limited pool of insurers even smaller’
Julian Brincat, head of IFAs, Protean Risk
In May, O&M Pension Advice was the latest firm to announce it was stopping its DB transfer services due to PII difficulties.
PII is liability insurance that covers firms when a third-party claims to have suffered a loss, usually due to professional negligence.
‘Most firms that have renewed their PII in 2018 have seen premiums go up. About one-third of firms say the increase is between 10% and 25%’
Heather Hopkins, analyst, NextWealth
The FCA requires firms offering DB transfers to hold PII cover to help prevent insolvencies which then lead to excessive claims on the Financial Services Compensation Scheme.
O&M said the PII market had hardened after the British Steel pension scheme fiasco, when workers were targeted by unsavoury practices by some advice firms. It made finding another provider at short notice virtually impossible.
The fallout from the British Steel scandal is that the UK regulator has increased its oversight and scrutiny of the DB pension transfer industry. This means that insurers and regulators must be on their toes and able to prove they have carried out high levels of due diligence.
On 8 June, the FCA released a data bulletin that revealed the burden PII had on DB transfer providers during 2017.
One key finding was that intermediary firms collectively paid in excess of £300m for PII over the year.
The impact was the greatest for smaller firms with up to £100,000 in revenue, which pay 4.2% of their regulated revenue for insurance cover. This compares with 1.2% for firms with more than £10m in revenue.
Furthermore, independent research from NextWealth indicates that PII premiums for financial advisers is on the rise in 2018.
Heather Hopkins, analyst with NextWealth, said: “We are still waiting for the results to come in but most firms that have renewed their PII in 2018 have seen premiums go up.
“About one-third of firms are telling us that premiums have increased by between 10% and 25%,” she said.
Blue steel: the PII market has hardened following the British Steel pension scheme fiasco
The advice gap
Craig Stokes, a chartered financial planner and head of pension transfer advice at recently launched company Pension Advice Specialists, said it is “without a doubt” becoming more difficult for firms offering DB transfer advice to get PII.
“I am aware of one large provider exiting the market for this reason and it is likely that more will follow.
“I attended a conference a couple of months ago and there was a presentation by a large PII provider, who themselves were doubting their ability to provide cover for DB advice.
“Many PII providers are already refusing to cover such advice, driving premiums higher for those that remain,” he said.
Stokes said an advice gap in the availability of DB guidance has opened up following significant players exiting the market.
This gap will only widen further if firms are unable to get or renew their PI insurance, leaving clients with little chance of getting the advice they need.
“There has never been a more important time for scheme members to get robust, relevant advice before considering a transfer. Market forces are unfortunately cutting the supply of such advice,” he said.
A restricted market
Julian Brincat, head of IFAs for financial services insurance provider Protean Risk, said while DB transfer advice has been a focus area for insurers since the pension freedoms in 2015, the market has become more restricted since the British Steel saga.
“We are certainly finding that a number of firms are approaching us having been declined by their current insurer, and are facing exclusions or significant limitations for transfer work.
“This has not been helped by a number of insurers withdrawing from the IFA PI market, making an already limited pool of insurers even smaller,” Brincat said.
When it comes to renewing PII, Brincat said companies must now be prepared to provide a much higher level of detail to their insurer to reinforce their application.
“Many of the issues we see are from firms who have not liaised with their broker during the year and are unprepared for the additional level of detail required. Increasingly, underwriters are requesting specific DB questionnaires to be completed,” he said.
Stokes said Pension Advice Specialists, as a new company entering the market, is conscious that PII premiums are likely to increase in the future.
“Our only hope is that the excellent quality of our advice and robust nature of our processes are seen as a risk minimiser and that this is taken into account by our PII insurer,” he said.
Will the Isle of Man’s conduct of business code make you more likely to use a product provider that is based on the island?
When to kiss goodbye to insurance bonds, the UK’s shattering of offshore secrecy and the banning of \an ex-SJP trainee adviser are some of the regional headlines that made the biggest splash in the past month\
To insurance bond or not?
People who are within five years of taking a pension should not be investing via non-income producing assets, such as insurance bonds and wrappers or structured notes, according to OpesFidelio’s Chris Lean.
Products such as funds, ETFs and collectives can provide a natural income with a reduced requirement to encash any capital units, the chartered financial planner said.
This creates flexibility and is tax efficient within a pension product, meaning a variable or fixed-income stream can be paid out.
In contrast, insurance bonds, even where they hold the same assets, have to encash units or surrender segments leading to potential short-term surrender penalties.
In addition to insurance bonds and wrappers, Lean highlighted the unsuitability of structured notes within insurance bonds, which he said can exacerbate the problem as the coupons may be dependent on the underlying assets.
If the underlying assets do not reach certain prescribed levels, then no income is received and there is a potential loss of capital.
In the long term, said Lean, structured notes are simply a return of capital.
He added that this is compounded by the risk that if a structured product has failed to qualify, there are short-term liquidity issues or further surrender penalties.
Lean: ‘People who are within five years of taking a pension should not be investing via non-income producing assets’
Overseas secrecy shattered
British Overseas Territories will have to introduce a public register of beneficial owners by 2020 following a shock move by the UK government in May, after it failed to thwart a bill tabled by the opposition.
Any territory that fails to introduce a public register will have one imposed on it through a Privy Council order. Jersey, Guernsey and the Isle of Man are exempt.
The premiers of the Cayman Islands and British Virgin Islands (BVI) were particularly scathing in their respective responses. Caymans premier Alden McLaughlin said the move was “reminiscent of the worst injustices of the bygone era of colonial despotism”.
BVI premier Orlando Smith said: “In the absence of a global standard, such an imposition by the United Kingdom is not only unfair and discriminatory but we believe that it would result in a material loss of jobs, output and government revenue in the territory and impede government’s ability to viably support its residents.”
Bermuda’s government released a statement rejecting the UK parliament vote.
The Caymans is now seeking changes to its constitution that would prevent the UK being able to force its will on the jurisdiction.
The BVI government has assembled a legal team to fight the register.
A partner of law firm Withers, Hussain Haeri, said: “We are confident that there are constitutional grounds for challenging the imposition on the BVI of a public register of the beneficial ownership of companies and human rights issues raised by public access to the register.”
Response from McLaughlin (left) and Smith was ‘scathing’
Regulator bans trainee adviser for faking it
A former St James’s Place trainee adviser has been fined by the Financial Conduct Authority and banned after it was discovered he lied about his qualifications and faked a document to cover his tracks.
The UK watchdog described Alexander Stuart as “not a fit and proper person” who “poses a risk to consumers and to the integrity of the financial system”.
He has been ordered to pay £34,000 by 28 September 2018 or risk the FCA recovering the entire outstanding amount as a debt owed.
Stuart is also prohibited from performing any function in relation to any regulated activities carried out by an authorised or exempt person or exempt professional firm.
In December 2014, Stuart deliberately attempted to mislead his supervisor at SJP into believing he had passed one of the exams necessary for him to attain the Level 4 qualification, the Chartered Insurance Institute’s (CII) Diploma in Regulated Financial Planning.
This would make him eligible for a statement of professional standing, meaning he would be independently verified as holding the appropriate qualification, had satisfied continuing professional development requirements and met with ethical standards.
Stuart’s downfall came swiftly after he submitted a fake qualifications document to the CII.
Following the FCA banning Stuart in May 2018, a spokesperson for SJP said: “Action was taken to suspend Mr Stuart as soon as it became known that false statements and documents had been provided in relation to his qualifications.
“No financial detriment has been incurred by clients.”
The CII is taking its UK template to Asia and the Middle East in the pursuit of common objectives of public confidence, trust and market engagement. Keith Richards reports
In the past 12 months we have witnessed a new era of engagement with international governments and regulators, as the Chartered Insurance Institute (CII) and Personal Finance Society (PFS) operate under a royal charter to raise public confidence and trust in the respective sectors.
I recently visited a number of countries across Asia and the Middle East to promote and implement CII support programmes.
The UK framework is respected around the world and there is a universal acceptance among their respective regulators of the value of UK qualifications and the importance of raising professional standards to address consumer trust concerns.
Negative public perception can often be influenced by a small minority, tarnishing the reputation for the majority and incurring increased regulatory scrutiny, rules and cost.
Such adverse reputational impact, coupled with increasing regulatory cost, will ultimately hit the profitability of firms and lead to poor unintended consumer outcomes.
Regulation is an effective force for improving public confidence and
engaging markets, as are appropriate professional standards, adherence to a voluntary code of ethics, commitment to continued professional development and to the right cultural behaviours.
Most developing countries already have a minimum set of qualifications in place, although some have not extended them beyond a very basic level for financial advisers, and insurance brokers are not yet included.
Theory of evolution
The CII has members in 150 countries and has been particularly active during 2018 in the UAE, Hong Kong, Singapore, Malaysia and Bangladesh; as well as the UK, Jersey and Isle of Man, all of which are considering how to address key public trust issues through the raising of professional standards or joint consumer awareness initiatives.
‘There is a universal acceptance of the value of UK qualifications and the importance of raising professional standards’
Each country is at a different stage of evolution. Take Asia, for example, where Singapore is setting the pace and has a raft of measures in place dedicated to raising professionalism and protecting consumers.
Singapore already runs three CII-accredited qualifications covering financial advice, health insurance and general insurance. Helping to facilitate this is a shared ethos between the regulator, the insurance and broker associations and the numerous companies that operate in the insurance/financial services sector. Best practice is pursued without any ‘big brother’ interference.
Indonesia and Malaysia are also making great progress, but it is fair to say India and the Philippines have a way to go and represent something of a challenge due to their prevailing cultures.
Malaysia alone has more than 16,000 students attending UK universities every year, and the objective is to help many of them to recognise the value of adding professional qualifications alongside a degree, as a differentiator to improve employment opportunities, especially one that carries the credibility of an internationally recognised chartered body.
The CII has introduced a professional certification and development programme for appointed representatives in collaboration with the Labuan International Insurance Association and the Malaysian Institute
With the growth of Malaysia’s financial sector anticipated to be up to 11% annually, it is reckoned that during the next 10 years the workforce will need to be expanded to around 200,000 – an increase of 56,000 from the current 144,000 employees.
Elsewhere, the CII has a number of well-established collaborations with international regulators, including the UAE, where it is working closely with the Insurance Authority, which is currently putting 4,000 Emiratis through the CII’s qualifications process.
The authority was set up just over 10 years ago and last year launched a free ‘My skills’ initiative, with the support of the CII, to train/qualify UAE nationals in all disciplines and fields of insurance.
In Hong Kong, where the CII has an office, there is a series of certifications for advisers working in general and long-term insurance and securities, in tandem with the Hong Kong Insurance Authority.
With an estimated 64,000 individual insurance agents and China right on its doorstep, the regulator is actively promoting Hong Kong as a regional insurance hub.
Another major emerging market is Bangladesh, which has approximately three times the population of the UK and is rapidly emerging as a major market from a financial services perspective.
In a formative visit organised by the CII’s Mumbai office, I spent a week there in April, during which time I had front line meetings with the minister of state, the minister of finance, the executive chairman of the regulator, the dean at East West University and the University of Dakar and presented to students at both, various insurance trade associations, the chairman of Green Delta Insurance Company and the CEOs of key businesses, concluding with a headlining insurance sector roundtable at the head office of the Daily Star national newspaper.
Such a packed schedule demonstrated an enormous appetite for UK levels of international training and excellence. It was an indication of the importance they attach to their rapidly developing insurance profession and the eminence with which they regard the UK template.
Securing public confidence and trust is a common objective for us all and it is essential that we work with regulators and governments as a united profession.
‘Securing public confidence and trust is a common objective for us all and it is essential that we work with regulators and governments as a united profession’
Keeping the retirement dream alive
Retiring in Europe could so easily become \a nightmare. Follow these top 10 tips \and take the tax pain out of the process
Choosing to retire to a European country is a dream for many. The pitfalls around making such a move, however, can turn this dream into a nightmare.
Blevins Franks’ business development director
Jason Porter outlines 10 things advisers need to be aware of when helping clients plan their European retirement.
Consider cashing in tax-efficient investments before leaving the UK. Individual Savings Accounts, venture capital trusts, enterprise investment schemes and premium bonds, among others, do not have tax-efficient status in other countries so you would be taxable on any income or gains that arise in your new country.
Unit-linked single premium life assurance policies are relatively tax-efficient in the UK. Local variations are also used across Europe, with a variety of benefits in terms of tax deferral, reduced income tax liabilities, IHT and wealth tax savings. But often UK-compliant products do not qualify as such outside the UK.
Bond tax relief
Time apportionment relief for the non-resident period of ownership of an offshore bond can help eliminate tax on an offshore bond if it is encashed after returning to the UK.
Retiring to a European country is a dream for many. But the pitfalls around making such a move can turn this dream into a nightmare
Most other European nations have some form of tax relief around selling a main home. However, be aware that this relief can be lost entirely. If the old UK main home is sold outside of a certain timeframe or the whole of the proceeds received from the sale are not reinvested in a new main home then this relief will be lost. It is often more beneficial to remain UK-resident until the UK main home has been sold.
In most double tax treaties, the UK cannot tax a company, private or state pension if you leave the UK. This passes to the jurisdiction where you take up residence. But UK government pensions almost always remain taxable in the UK.
It is likely to be beneficial to take the pension commencement lump sum (PCLS) prior to leaving the UK. The 25% tax-free portion is not replicated in other jurisdictions so this benefit should not be wasted.
Delay taking other benefits
Take advice on your pension options before retiring overseas. The options that are available in your new jurisdiction could mean it is beneficial to delay taking benefits until after you have left the country.
The options that are available in your new jurisdiction could mean it is beneficial to delay taking benefits until after you have left the country.
In addition, if you move overseas, the UK’s pension freedoms could open up further options in crystallising your pension fund very tax efficiently.
A Qrops could be beneficial if moving to certain EU states. The UK has introduced a 25% exit tax where the individual or the Qrop is outside the EU. It is uncertain whether the UK will extend this to Europe when it leaves the EU.
Several European nations have introduced an exit tax on the value of stocks and shares held when you cease tax residence. Consider utilising a wrapper such as an offshore bond in order to eliminate this possibility.
Each EU country comes with its own set of rules and regulations that can be a potential minefield for financial advisers. One wrong step can end in disaster for clients. However, careful planning by a knowledgeable adviser can help make a retirement dream a reality.
Freedom to travel
Careful planning can vastly improve an expat’s tax position, leaving them free to jet around the globe
Today’s globally mobile expat may live and work in several countries before finally settling down
to retire. Effective planning can reduce the impact of taxation while retaining a high degree of investment freedom and access to money when required.
George has worked for eight years in Singapore but has a 10-year posting in London before he retires in his native Australia.
He and his wife are both excited about the future but concerned as to the effect higher UK taxes will have on their standard of living.
Having been an active saver while in Singapore, George has amassed £2m in a range of Singapore-based unit trusts.
He believes that this money will support him during retirement and provide around £1m to purchase a property on his return to Australia.
George is happy with his investment portfolio and would prefer to retain the same funds. But, in London, he may need
to dip into his savings to support his lifestyle.
Following a discussion, it is understood that George will need around £50,000 per year from his savings while he is in London. He wants to know what he can do to make his savings as tax efficient as possible both in London and when he returns to Australia.
The recommendation is that George should invest £1m into a single premium portfolio bond. This can be funded by transferring his existing investments into the bond, avoiding the risk of being out of the market and retaining George’s preferred funds.
The remaining £1m can remain invested and be sold before returning to Australia to fund the property purchase.
‘Effective planning can significantly improve the tax position for the
internationally mobile expat as they move around the globe’
The income George needs can be provided by using the portfolio bond’s 5% tax-deferred withdrawal facility, without being subject to UK tax at the time of the withdrawal.
As George would have returned to Australia before making any further withdrawals, which means no UK tax would be payable, it is a significant improvement over paying tax of up to 45%.
As the income and gains from the remaining unit trust portfolio would not be remitted to the UK, no UK tax would be due on these.
There would be no tax on income and gains inside the portfolio bond, and no tax would be payable on withdrawals from the bond.
This is because it is treated as an insurance policy for Australian tax purposes and will have been in place for more than 10 years by the time George begins to make withdrawals in Australia.
The remaining unit trusts would be sold before George returns to Australia, meaning that no Australian tax would be payable on the gains realised.
Effective planning can significantly improve the tax position for the internationally mobile expat as they move around the globe.
Given expats tend to have more complex financial affairs, it is important they talk with an adviser as early as possible so they fully understand their tax position and can put in place a wealth plan that will help them in the present day as well as in the future.
When undertaking this type of planning, with the increased focus on tax transparency, planning should be straightforward, non-contentious and compliant for each jurisdiction where a client is likely to live.
Platform under construction
Service disruption across the adviser platform sector has caused consternation for users, \and things could get worse as providers scramble to update their technology to cope with the influx
The UK adviser platform sector is in turmoil. This year, £130bn of assets under administration (AUA) has already fully migrated because of replatforming and technology upgrade projects, and a further £157bn is still in various stages of the migration pipeline.
Added to that, most of the £130bn that has already moved is on platforms where the overarching project is not yet complete, meaning there is still significant technology infrastructure disruption ongoing within the platform operation.
Meanwhile, with a raft of initial public offerings (IPOs), acquisitions of significant portions of books of business and several further rumoured acquisitions under discussion, the adviser platform landscape looks about as stable as Donald Trump’s Twitter timeline.
This all adds up to 90% of market AUA being subject to disruption of some type and 36% in transition specifically due to replatforming.
‘Platforms not only continue to dominate the market for advised investment business but they are increasing that dominance almost exponentially’
Platforms have quite rightly received lots of flack. Advisers, and by extension clients, have been experiencing a series of issues. Trades have been failing and many have been unable to make withdrawals or data transfers.
This is not OK. Neither is the general uncertainly created by these projects because it is always a waiting game, often with long-term ambiguity associated with when and what is going to happen.
Victims of their own success
However, amid all this disruption, adviser platforms not only continue to dominate the market for advised investment business but are increasing that dominance almost exponentially. This is evidenced by year-on-year increases of 48.7% and 40.5% in gross and net inflows, respectively.
Despite all the disruption, platforms are flourishing and advisers are keeping faith with them. This is small consolation to those that are currently experiencing usability and service issues or having to review due diligence in light of what’s going on.
The reason for all this disturbance is that the existing kit is creaking under the strain. What we are seeing is a race to scale up. Platform businesses that never anticipated managing more than £5bn with 30 staff on the original systems are now approaching £20bn with hundreds of staff and plans to reach £50bn in the foreseeable future.
The technology (and general business infrastructure) for many platforms was not designed to cope with these levels of assets and transactions. Whether upgrading to a new version of a current provider’s tech, moving from proprietary to one of the big three tech providers or moving from one of the big three to another, something had to change.
As the market has matured as a collective, we are now seeing a common boiling point where a whole raft of technology changes are taking place simultaneously. And it is all being played out under the microscope of a hungry trade media eager to uncover the next replatforming tech scandal.
It is a tough old world out there for platforms and those advisers and clients relying on them. While some of the reported issues have been horrendous, some smallish issues that were not really that newsworthy have been blown up out of all proportion with sensational click-bait headlines.
‘A raft of technology changes are taking place under the microscope of a trade media eager to uncover the next replatforming tech scandal’
I don’t think we should forget how much platforms have improved the life of the adviser. Things are not perfect, far from it in some cases, but there will always be problems.
Some platforms will always provide better service than others. However, it would be good to remember the past before we complain too much about the present.
No one wants to go back to 1997 and have to submit 10 different application forms across several providers, while losing the will to live fighting with call centres over several months, just to set up a mixed wrapper portfolio for a client. Nevermind having to then monitor and manage it on an ongoing basis.
Of course, not every platform has been in a hurry to fundamentally change its technology of late. It is important to mention that Transact, for one, is perennially a happy proprietary kit proponent.
Standard Life, AJ Bell, Novia, 7IM, James Hay, Zurich and Raymond James have not replatformed, although the word ‘yet’ might be applicable in one or two cases. And some of that list are still in the ‘disruption’ box, because of the likes of IPOs, sales, acquisition and merger activity.
At The Lang Cat, we spend more time than is probably healthy assessing these major change projects. We don’t see any immediate end to these issues, but 2018 is a spike.
Some of the current activity will continue on into next year and beyond, and there are some significant new business change projects looming on the horizon.
However, I think we will look back and recognise that the past three years of this decade were probably the most disruptive period, catalysed by a sector that was taken by surprise by its own success. As sci-fi writer Isaac Asimov once said, “Any technological advance can be dangerous. Fire was dangerous from the start.”
Despite all these short-term problems, I believe what we are feeling are growing pains, however unpalatable that is at present.
‘Things are not perfect, far from it in some cases, but we should not forget how much platforms have improved the life of the adviser’
Spread \the \word
Ross Pennell of South African start-up \Advent Wealth insists the only way to \avert a future crisis is to seek out new \ways to engage the populace and educate \them on the importance of financial \planning. Kirsten Hastings is all ears
Reputation is everything, especially when operating in a small market, as Ross Pennell well knows. Based in Cape Town, the ex-DeVere regional manager founded Advent Wealth in 2014 after an acrimonious split with his former employer prompted him to take a different path.
“As the name Advent implies, it’s the arrival of something new, something notable,” he tells International Adviser.
“One of the things about working for somebody else is it’s their company and they have the right to have their business models operating however they like.
“I didn’t want to go back into that same sales-commission-product selling environment. I wanted to go into lifestyle financial planning and financial coaching with a fee-based model.”
Setting up a new financial advice business proved a reasonably straightforward task for Pennell, who is a qualified accountant. “From a product provider point of view it was very easy. Everyone I approached said yes.”
‘If you get a good reputation and act in a professional manner, your clients become your ambassadors’
Ross Pennell, CEO and founder, Advent Wealth
Clients were also willing to make the move. “As with any new start-up, the biggest challenge you face is cashflow, so keeping my relationship with those clients meant I was able to get off on a strong footing,” he says.
Among the companies that have signed terms of business with Advent are Capital International, Interactive Brokers, RL360 and Friends Provident International. Pennell also has terms with local providers, including Allan Grey, Investec and Old Mutual.
“I prefer to work with providers that have a local office. If a client wants to kick the tyres I think it’s a much better proposition that they can actually meet someone here. There are a number of fiduciary players and trustees who essentially fly in, but I don’t like to do business with those types of firms.”
Word of mouth
Since starting Advent, Pennell is proud to say he has never made a single cold call. “It’s all word-of-mouth and referral business. If you get a good reputation and act in a competent, credible, professional manner then your clients become your ambassadors.”
Having grown the business for the first three years with just himself and an assistant, Pennell took on two advisers this year. “Pedro Machado and Andrew Clayton have long financial services career in their own rights and both just recently completed their postgraduate diplomas in financial planning.”
As advisers become more qualified, Pennell says the South African advice market is developing into a profession.
“There are a number of good, well meaning, well qualified financial planning businesses out there now.”
It all comes down to business model, he believes. “If you run a commission-only business model, where is the incentive for that sales person to see that client again, unless it’s to sell them something?
“When you have a fee-based business model and you’re on a retainer, then your interests are aligned. The incentive for both parties is to grow the clients’ wealth in the most cost-effective, sensible manner to meet their financial goals and aspirations.”
Dawn of a new era: South Africa’s advisers are witnessing the local market developing into a profession
In the know
There are still issues lurking in the market that concern Pennell, such as the use of Qualifying Recognised Overseas Pension Schemes (Qrops). In South Africa, the current tax legislation states any money from an offshore pension scheme that originated from overseas employment is tax-free, he says.
“Under the double taxation treaty between the UK and South Africa, a UK pension would be taxed at source but that tax could be reclaimed under the DTA. If that pension was invested in a Gibraltar Qrops, they would unnecessarily pay a 2.5% flat rate.”
Admittedly, there is an administrative burden in applying to HM Revenue & Customs and the South Africa Revenue Service but Pennell says he is unaware of any requests being rejected.
Striving to engage
Another concern is a lack of financial education in South Africa, which has one of the worst savings rates in the world.
At retirement, people can withdraw a third of their pension pot, the first ZAR 0.5m of which is tax-free. They then choose what to do with the balance. One option is a living annuity, which is similar to a UK Sipp.
“Except, by law, you have to draw down between 2.5% and 17.5% per annum of the balance of the living annuity,” Pennell explains. “Imagine if someone is not taking financial advice and they’re drawing down at a maximum rate. How long is that going to last?”
Providing clients with information is a priority at Advent.
“Financial planning doesn’t have to be this fuddy-duddy, boring, paper-driven process. It should be engaging. We educate our clients with regular blogs and monthly newsletters,” says Pennell.
“With South Africa’s large youth population, we need to try to educate people to help avert a potential financial crisis in the future. How there isn’t financial literacy taught in schools beggars belief.”
In that spirit, Advent is teaming up with a local pure ‘robo-advice’ business to develop a fintech solution that enables clients to view whether their plans are on- or off-track.
“It will be something very user friendly. If clients want to see their portfolio, they can log on through an app or their user ID on a web portal. We are very confident we’re going to deliver a fintech package of the kind that the South African market hasn’t seen before.”
‘Financial planning doesn’t have to be this fuddy-duddy, boring, paper-driven process.
It should be engaging. We educate our clients with blogs and newsletters’
The age of Fintech: Advent is embracing ‘robo-advice’ to engage South Africa’s growing youth population
Divide and conquer
Weakness in Q1 2018 has given way to a rally across all equity markets and the UK has reaped the benefits. But data shows the gap between the top and bottom FTSE 100 performers is broadening
In the year ending May 2018, returns on UK equities have been essentially in line with global equities, as measured by the FTSE All-Share and MSCI ACWI indices.
The FTSE All-Share Index is showing a small positive return (1.88%), driven by the energy, healthcare, industrials and materials sectors. As tensions over global trade abated and positive corporate earnings news dominated, weakness during the first quarter has given way to a rally that has been seen across equity markets.
The energy sector has been particularly strong during this recent period, as views on supply/demand turned more positive and the crude price rose. There was a further boost in the UK from the weakness in sterling, with BP and Royal Dutch Shell among the top contributors to index returns.
These market moves have been positive for value-biased investors and we have continued to see the recent pattern of calendar year performance flipping between value and growth leadership.
The UK market has become very intolerant of any level of earnings disappointment, reacting with significant share price moves.
While the future seems very encouraging for active managers in terms of share prices reflecting fundamentals, the feeling is that it is becoming increasingly important to avoid stock blow-ups.
This is also evident in the data, comparing the same periods in 2017 and 2018 there is a marked difference between the range of outcomes for FTSE 100 names, with 40 percentage points extra dispersion year to date between the top and bottom performers.
‘The UK market has become very intolerant of any level of earnings disappointment, reacting with significant share price moves’
The largest funds are all UK-domiciled and include a number of passive products.
• LF Lindsell Train UK Equity has a track record of remarkable consistency. The fund holds a Morningstar Analyst Rating of Gold. Nick Train (pictured above) has been at the helm since launch in 2006, and the fund relies on his thinking and analysis. His approach seeks unique companies that offer a high and sustainable return on equity and low capital intensity. He runs a concentrated portfolio of around 25 stocks and adopts a long-term approach that results in very low turnover. The portfolio is focused on a small number of themes that Train believes will produce long-term success, including consumption growth and intellectual property, and these have given the fund a clear bias towards the growth style.
‘LF Lindsell Train UK Equity is focused on a small number of themes that Train believes will produce long-term success’
• Majedie Asset Management UK Equity holds a Morningstar Analyst Rating of Bronze. The fund combines three large-cap sub-portfolios and one small-cap portfolio. Each is run by a different manager, with a fairly consistent allocation of 30% to each large-cap manager and 10% to the small-cap manager. There has been some change at the top but two managers, including firm co-founder James de Uphaugh (pictured above), have been on the fund since launch and there have been no alterations since 2014. The managers are free to follow their own approaches but at times have similar views. At these points the fund can deviate significantly from the FTSE All-Share benchmark. Returns have been strong over an extended period of time, although there have been short-term periods of weakness.
The top performers over the past three years are dominated by funds that are focused on smaller-cap stocks.
• The Old Mutual UK Smaller Companies Focus Fund has produced exceptional returns over the past three years. Current manager Nick Williamson (pictured above) took over as lead manager in January 2016 and the majority of the subsequent outperformance is attributable to him. Williamson uses the established team approach that combines top-down and bottom-up inputs. He takes significant input from his colleagues in terms of idea generation and research, and he has been successful at backing the very best of their output.
There is ample opportunity for him to exert his own influence on the fund through stock selection, weightings and overall positioning, while the fund’s relatively limited AUM has also allowed him to add some interesting micro-cap stocks and react actively to shorter-term price moves. The fund holds a Morningstar Analyst Rating of Bronze.
• TB Amati UK Smaller Companies holds a Morningstar Analayst Rating of Bronze. It has been managed by Paul Jourdan since 2000 and he now works alongside three other managers, Douglas Lawson, David Stevenson and recent addition Anna Wilson. The team manages Aim VCTs as well as this product, giving them early exposure to the newest and smallest companies in the UK market, many of which will progress into this fund.
As would be expected, the fund has a greater exposure to micro-caps than its average peer but it invests across the market cap range, including a limited number of mid-caps. It focuses on sustainable growth stocks and has a strong long-term track record.
There have only been a very small number of fund launches in the UK equity space during recent years.
• One fund that has significant assets under management is Polar Capital UK Value Opportunities. It was launched in early 2017 by managers George Godber and Georgina Hamilton who ran money using the same approach at their previous house, Miton Group. This is a multi-cap fund that seeks out undervalued companies but there is a clear bias to small and micro-cap stocks.
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