How the right coach\can help you reach\your financial goals
Editor Kirsten Hastings introduces the July/August edition of <i>International Adviser</i>
Welcome to the combined July/August edition of International Adviser. The following pages are filled with features to keep you informed during the long summer now the World Cup has ended.
We have a Best Practice article from
the Chartered Institute for Securities & Investments and our Tax Matters feature
from Buzzacott will be of particular
relevance to people with US and UK
offshore disclosure issues.
Franklin Templeton has broken down the world of exchange-traded funds in this month’s Masterclass, while The Lang Cat’s second Technology Briefing tackles the thorny issue of Mifid II.
Coaching is the name of the game in our Financial Planner profile, with Morningstar providing Investment Insights into the global bonds sector.
Deadlines are now closed for the Best Practice Adviser Awards for Europe and will be closing soon for Singapore, Hong Kong and the UK.
South Africa and the Middle East are still open, so don’t delay – get your team and company recognised for their hard work and best practice.
Until September, have a lovely summer.
Kirsten Hastings, editor,
The perfect human
While many advisers feared a dystopian future in which IFAs would be replaced by robots, the reality is a much more symbiotic relationship between ‘robo’ propositions and human advisers as the benefits of digital integration play out. Tom Carnegie reports
‘If you can meet UK standards, your proposition will be reusable anywhere’
Ian McKenna, managing director, Finance & Technology Research Centre
When the first robo-advice propositions were launched just over 10 years ago many financial advisers feared it could spell the end for their industry. But, as time goes on, the fear that advisers could eventually be replaced completely by robots is starting to change.
‘Much has changed since the first phase of robo-advice, which was designed to capture millennial interest’
Lester Petch, chief executive, TAM Asset Management
While some advisers still see the future as being digital, many now believe robo-advice offerings are a tool that will benefit their business, rather than replace it. This paradigm shift was highlighted by the FCA in May, which announced it would take a tougher stance on robo-advice.
‘As a digital-first business,
we are purpose built for
the change we’re leading
in the industry’
Lisa Caplan, head of financial advice, Nutmeg
The regulator had reviewed seven digital offerings and found multiple failings, including unclear charging structures and a failure to protect vulnerable clients.
At the time of the announcement, Ian McKenna, managing director of the Finance & Technology Research Centre and founder of Digital Wealth Insights, said the FCA review highlighted the fact there would be no soft option for robo-firms.
He said it is widely recognised internationally that the UK has the toughest advice suitability standards in the world. “If you can meet UK standards, your proposition will be reusable anywhere.”
Lester Petch is chief executive of TAM Asset Management, which is currently working on a non-advised digital proposition to provide support where an IFA’s clients either do not need or want to take advice.
“Our non-advised proposition is complementary to advisers and is not in direct competition [with human advisers], unlike the robo-advice sector, which often is,” Petch said.
When it comes to the possibility of robo-advisers replacing humans, Petch said he cannot see a future where this will happen.
“Holistic financial advice will always
be required. For instance, inheritance,
tax and pension planning will still be the
preserve of financial advisers, at least for
the next decade.”
Moving forward, Petch expects there to be a “symbiotic relationship”, instead of a conflicting one, between robo-propositions and human advisers. “Advisers using our non-advised digital service is one iteration of that solution,” he said.
The future is digital: greater automation can offer greater efficiencies and improved client experience
While Petch sees the future as being holistic, Lisa Caplan, head of financial advice at Nutmeg, said the online investment manager sees it as “digital first”. “There are no signs that investors or the industry plan to take a backward step,” she said.
Nutmeg was launched in 2012 and was the first online wealth manager in the UK. At the end of 2017, the platform had more than £1bn in assets under management for more than 50,000 customers.
Despite the ‘digital first’ stance, Caplan said the company still employs more than 140 people based in London alone.
“We have a team with more than 100 years’ experience in private wealth management, macroeconomics, exchange-traded funds, asset allocation and risk management.
“Customers who want to can call our customer service number and speak to a person, not a robot,” she said.
Since the launch of Nutmeg, Caplan said there are more competitors entering the market as investors adopt technology to manage their investments.
“As well as start-ups, we are also seeing some of the big, traditional players look at how they can adapt their existing model or bolt-on an online capability.”
She said some firms will develop their own proposition, while others may look to acquire a smaller provider.
“We believe there is a role for independent online wealth managers that are truly offering a different service for customers. It’s more than offering traditional wealth management services through a website.
“As a digital-first business, we are purpose built for the change we’re leading in the industry,” Caplan said.
Petch and Caplan both dislike the term ‘robo-advice’. Petch prefers the term ‘digital’ as “much has changed since the first phase of robo-advice, which was designed to capture millennial interest”.
“Instead it is pivoted to a hybrid model with firms like Wells Fargo offering unlimited human financial advice to support a robo-proposition,” Petch said.
Caplan does not like the term as she believes it gives clients the sense that robots are managing their money.
She said: “The reality is very different. We use artificial intelligence to automate some of the process and improve efficiency.
“We have tools and a risk-profiling questionnaire that can help our customers make an investment decision that is right
What do you consider the best retirement vehicle for clients?
- Offshore bond
- Invest via a platform
Law and order
A law firm targeting an introducer, an IFA and two Sipp providers in a £7.3m suit, liquidators of a defunct investment scheme pushing for the directors to appear in court and an adviser cracking under interrogation were some of the stories making the biggest splash in the UK during the past month
Pensioners seek redress from unregulated investment scheme
Law firm Anthony Philip James & Co (APJ), a financial mis-selling litigation firm, is acting on behalf of 100 clients who were mis-sold investments in InvestUS, an unregulated investment scheme based in the Seychelles.
APJ estimates that clients could be due a total of £7.3m in compensation after they were misled about the scheme’s suitability as a pension investment.
Clients who invested in the scheme allegedly held their pensions in self-invested personal pensions (Sipps) with providers Liberty Sipp and Guinness Mahon.
The scheme purchased repossessed properties in Detroit, Chicago and Florida following foreclosures after the financial crisis. The properties were then renovated, let and sold on, with investors promised returns of 15% per year over three years.
The investment scheme failed, rendering clients’ investments worthless, despite the ‘guaranteed’ returns promised to them.
APJ said clients have each lost up to £243,000 after moving their pensions from DB schemes to Sipps, which included investments in InvestUS.
The firm alleges the transfers were made on the advice of Avacade, an unregulated introducer that conducted free pension reviews and promised individuals far greater returns than their DB pensions offered.
APJ further said that in order to fast track these investments, Avacade had enlisted UK-based independent financial adviser Shah Wealth Management to carry out risk reports on the suitability of the investments on a one-off basis.
InvestUS investors were promised a 15% return from the renovation of repossessed property in Detroit, Chicago and Florida
Court date for New Earth fund directors?
The directors of the failed New Earth Recycling and Renewables (NERR) fund could be interviewed in open court under oath, following a bid by the liquidators to get them to “clarify the affairs and dealings of the company”.
NERR was managed and promoted by Premier Group Isle of Man. It collapsed in July 2016 after the Isle of Man High Court granted a wind-up application for it and two feeder funds, known collectively as the New Earth Group of Funds.
At the time the order was granted, the value of the investments was close to zero.
Premier Group went into voluntary liquidation in 2016 but can’t be wound up until investigations into its failings are completed.
In an update to shareholders and creditors, the liquidators said they had attempted to conduct formal fact-finding interviews with the company’s directors, local media reported.
Out of the four directors, two who are based in the UK attended interviews.
All four have since informed the liquidators they are “no longer willing to be orally interviewed” and have “indicated they will only provide written answers to any questions put to them”.
These refusals have pushed the liquidator to make a legal application for the two Isle of Man-based directors who have yet to be interviewed to be compelled to do so in court.
NERR was managed and promoted by Premier Group IoM
Adviser banned and fined for faking it
A financial adviser who forged qualification documents has been banned after he cracked during a ‘compelled interview’.
Darren Colvin Cummings of Newtownards, Northern Ireland, was banned and fined £29,300 for faking his statement of professional standing (SPS) document from the Chartered Insurance Institute (CII).
Cummings was approved as a director at DCC Financial, where, as a sole adviser since 2014, he was licensed to carry out insurance and home finance business in the UK.
In February 2015, Cummings asked the Financial Conduct Authority to vary
his permissions to provide investment
After the FCA decided to check on Cummings’ qualifications in May 2015, and during a correspondence in June, he supplied fake qualifications and made false and misleading statements on his CV.
Later during ‘compelled interviews’ with the authority, Cummings tried to blame another member of staff at DCC but eventually admitted he had not been issued with a SPS by the CII and that documents were fabricated.
Cummings also admitted handing the forgeries to another member of staff at DCC Financial in support of the CF11 application.
The FCA said in its final notice the “misconduct amounts to a failure to act
with integrity [and] Mr Cummings poses
a risk to consumers and to the integrity
of the financial system, and that
the nature and seriousness of the breach outlined above warrants the withdrawal
of Mr Cummings’ approval”.
In mitigation, Cummings said he had been drinking and that his “judgement was destroyed” following a mental breakdown.
However, according to the regulator, Cummings had not given a compelling explanation as to how his mental health affected the honesty of his actions.
Cummings is the second adviser to make headlines recently after being caught faking their qualifications. In May, a former trainee adviser at SJP was fined and banned after it was discovered that he had faked a document in a bid to advise retail clients.
A financial adviser of Newtownards, Northern Ireland, was banned and fined £29,300 for faking his qualifications
Leading by example
As the UAE’s financial services sector goes from strength to strength, local \regulators are working hard to ensure best practice is being followed at every step
Financial services is one of the top
growth sectors for the UAE, second
only to the oil & gas industry.
The sector has made tremendous progress during the past decade with the set-up of the Dubai International Financial Centre as the first onshore financial free zone in the country, as well as other measures taken
by the UAE Central Bank to ensure transparency and healthy competition
among the banks it manages.
This year should be no exception, with economic growth in the country predicted to have a positive impact on the banking sector.
With such growth, however, comes greater responsibility, first to ensure that the financial services profession continues to contribute to the economy in a sustainable manner and, second, to make sure the correct regulations are in place to support this growth.
Before looking at how regulations need to be implemented and assessing what their impact will be on ethical and professional behaviour, it is important to see how far the UAE financial sector has come in terms of its regulatory landscape.
The primary regulations of the UAE’s banking industry date back to 1980 when the UAE Federal Law No 10 was implemented to establish the UAE Central Bank.
This was followed by the promulgation of the monetary system and the Organisation of Banking, commonly known as the Banking Law, which provides a comprehensive set of provisions pertaining to the registration, licensing and operation of commercial and investment banks, and other financial institutions and intermediaries.
More recent changes include the introduction of VAT in the UAE, an increased focus on corporate governance and updates in 2016/17 to the Basel Accords, a series of three banking regulations (Basel I, II and III) set by 27 countries and the EU, collectively known as the Basel Committee on Bank Supervision.
Additionally, with the advent of e-commerce and e-banking, the sector has begun to embrace major tech disruptions such as artificial intelligence, blockchain and fintech. ‘Traditional’ banks have been pushed out of their comfort zones and forced to adapt to the changing technological landscape.
These are just a few of the changes that have had a huge impact on financial services. UAE regulatory bodies, the Dubai Financial Services Authority, Securities and Commodities Authority (SCA) and Abu Dhabi Global Markets Financial Services Regulatory Authority, have responded with stringent regulatory requirements and guidelines.
These are issued and monitored closely, necessitating education and follow-through by financial services professionals.
One example is the Regulatory Framework for Stored Values and Electronic Payment Systems Regulation (EPS) issued by the UAE Central Bank pursuant to the Cabinet Decision No 6/6 of 2016.
The Dubai Financial Market set up a trading platform to provide continuous support to the thriving ETF sector. These breakthroughs have acknowledged the fast-growing business of digitalisation in the country which is a giant step to technological adoption.
Another notable policy implemented by the SCA is that 30 hours of continuing professional development (CPD) per year is now mandatory for each financial professional within licensed firms.
The SCA has also increased the number of job roles within licensed firms that must be held by qualified individuals, making it the only regulator to mandate both qualifications and CPD to UAE financial professionals.
‘A solid regulatory framework will keep the ball rolling in the establishment of a resilient monetary and financial market environment in the UAE’
Best in class
Taking all this into consideration, it is crucial that financial services professionals based in the country have best-in-class qualifications to ensure regulations are adhered to as intended.
Professional bodies such as the Chartered Institute for Securities & Investment aim to maintain and develop the skillset of professionals working within banking and other financial services to promote trust and integrity within the sector.
Keeping in mind the UAE’s goal to establish a diversified, knowledge-based economy as part of the Economic Vision 2030, a solid regulatory framework will keep the ball rolling in the establishment of a resilient monetary and financial market environment.
The UAE is undoubtedly going in the
right direction to establishing and
maintaining a robust regulatory
framework, which is cultivating a
culture of transparency, integrity and high standards of professionalism, on a par with bigger and more established economies around the world.
The road to growth: the booming financial sector in the UAE is second only to the region’s oil & gas industry
Nowhere \to hide
September is the deadline for ensuring no offshore US and UK historical tax payments have been overlooked, with draconian penalties for those who fail to do so
The end of September marks the end of disclosure opportunities for taxpayers to bring their US and UK tax affairs up to date voluntarily. Those who fail to comply will leave themselves open to potential criminal action and/or substantial civil penalties.
The Foreign Account Tax Compliance Act (Fatca) and the Common Reporting Standard (CRS) were designed to improve global tax compliance and transparency, and co-operation between tax authorities.
Fatca is intended to increase transparency for the US Internal Revenue Service (IRS) with respect to US persons investing and earning income through non-US institutions.
Required to report
Under Fatca, the IRS has obtained information relating to offshore accounts, which has then been used to identify potential non-compliant individuals. In accordance with CRS, more than 100 countries have agreed to share information on residents’ assets and incomes.
For example, overseas financial institutions will be required to report financial information relating to customers who appear to be tax resident outside of the country/ jurisdiction where they hold their accounts.
They may then share that information with the tax authority where the customer is believed to be tax resident. The UK’s HM Revenue & Customs (HMRC) is due to receive such financial information from overseas tax authorities later this year.
‘If you do not correct any historical UK tax error before 30 September 2018, and HMRC discovers the mistake, there will be crippling penalties’
The IRS has confirmed it will be closing the 2014 Offshore Disclosure Programme (OVDP) on 28 September 2018.
The OVDP is available to taxpayers who face potential criminal liabilities and/or substantial civil penalties due to a wilful failure to report foreign financial assets and pay all tax due in respect of those assets.
Under the OVDP, taxpayers are protected from criminal liability and pay a fixed penalty.
For taxpayers whose failure to comply is non-wilful, the IRS has confirmed the following disclosure options are still
available: IRS-Criminal Investigation Voluntary Disclosure Programme;
Streamlined Filing Compliance Procedures; Delinquent FBAR Submission Procedures;
and Delinquent International Information Return Submission Procedures.
‘HMRC is under pressure to crack down on wealthy offshore taxpayers and has challenging prosecution targets to meet’
The UK introduced legislation in late 2017 called ‘Requirement to Correct’ (RTC). In summary, if you do not correct a historical UK tax error before 30 September 2018, and HMRC later discovers the mistake, through information received under the CRS sharing regime, for example, there will be crippling penalties: 200% of the tax plus 10% of the value of any related assets.
In addition, HMRC may publish your details on its website, which is watched closely by
The RTC legislation will not just affect UK residents. If you are an individual, trustee or director/shareholder of a non-UK company and have consistently resided outside of the UK, you may still have a UK tax problem.
Should a disclosure be required, one can then be made, whether unprompted or prompted by HMRC, using the 2016 Worldwide Disclosure Facility (WDF).
Anyone who wants to disclose a UK tax liability that relates wholly or partly to an offshore issue can use the WDF. However, the WDF closes its doors on 30 September 2018
Any person who has knowingly and deliberately evaded UK tax in respect of offshore income, assets or gains should think very carefully about whether the WDF is the right disclosure process for them, given it does not provide immunity from prosecution.
Alarmingly, HMRC is not averse to criminally investigating taxpayers who are seeking to disclose irregularities and settle their tax affairs on a civil basis.
HMRC is under pressure to crack down on wealthy offshore taxpayers and has challenging prosecution targets to meet, so specialist advice must be sought about the most appropriate disclosure process to minimise any potential prosecution.
In certain circumstances, HMRC’s Code
of Practice 9 Contractual Disclosure Facility would be a more suitable disclosure process, given it provides immunity from prosecution in relation to all matters that have been
‘The US and UK’s tax systems have far-reaching tentacles so if you have any connection to the US or UK, you should check your position carefully’
The US and UK tax systems have far-
reaching tentacles, so if you have any connection to these countries – in whatever capacity you are acting – you should check
the position carefully, just to make sure
that nothing has been missed and that you have fully complied with all your tax
Post September 2018, when the IRS and HMRC close their disclosure opportunities, US and UK taxpayers face draconian assessment and penalty powers and, in the worst-considered cases, criminal action with the potential loss of liberty and assets.
Spoilt \for choice
Though plain vanilla ETFs still account for \the vast majority of the market share, this rapidly evolving sector has much more to offer and advisers must match clients with the best tool to satisfy their financial goals
The exchange-traded fund industry has evolved dramatically during the past few years and ETFs have gained a tremendous amount of assets. That said, providers still have a lot of work to do to ensure all clients understand the merits and applications of these modern investment tools.
Within the overall ETF market in Europe, the vast majority of investors allocate to ‘plain-vanilla’– or market-capitalisation weighted – ETFs, which represent more than 90% of the total sector in the region.
The adoption of plain-vanilla ETFs has been very strong in the US, especially on the retail side, as those tools provide a tax advantage that is non-existent in Europe.
As a result, the split between retail and institutional ETF investors in the US stands at around 50:50.
In Europe, institutional investors are still the ones driving ETF assets, although this is changing, thanks to regulations such as the UK’s Retail Distribution Review creating a more level playing field for ETFs.
ETFs are now part of the wider investment landscape and represent an additional option for clients to use alongside more traditional investments, and come in a variety of types.
‘ETFs are now part of the wider investment landscape, providing an additional option alongside more traditional investments’
Market-capitalisation weighted ETFs track an index that is built using the size of a firm as the main criteria. The bigger a company, the bigger the weight in the portfolio.
When an investor buys an ETF that follows one of the large-cap indices then they can expect to own some of the biggest companies in the world.
From a retail investor’s point of view, ETFs can be a simple and effective tool. Because they are transparent and low cost, an investor can build a very efficient and diversified portfolio by owning only a few of the funds.
Investors used to stock trading will find ETFs intuitive as they trade like a stock. The advantage is you will be able to buy a basket of stocks in one go, reducing costs and making the trade more efficient and diversified.
Not without issue
Although there are some clear benefits in using those relatively simple indices built on market capitalisation, there are also some challenges investors should be aware of:
• The market-cap indices tend to be backward-looking.
• Market-capitalisation weighted indices can also be counterintuitive as the index keeps buying what is already expensive and selling what is potentially cheap.
• Indices may lead to concentration risk in some countries or sectors and should be looked at closely to better understand what risks are being taken.
The issues are even more acute on the fixed-income side, where bond indices are issuance weighted according to the size of the debt. This means the more debt a company or government issues that meets index criteria, the larger the relative weight it holds in the index. Again, this can seem counterintuitive.
In an attempt to try and solve the challenges faced by traditional ETFs, such as concentration risk, a new generation of ETFs emerged a few years ago, called smart beta or factor investing.
Factor investing has been around for decades and research on the topic can be traced to the 1930s, when the criteria of quality and value were first looked at.
This early research tells us something pretty straightforward: companies with good balance sheets, good profitability and continuous earnings growth perform better. It also shows that stocks with lower price/earnings or price/book ratios outperform growth stocks.
Up until recently, very few strategies were leveraging that research and some ETF providers, including Franklin Templeton, identified a gap. The idea is to benefit from anomalies such as quality and value that we see in the market and capture those ‘premiums’ using a very efficient and transparent vehicle such as the ETF.
We are also now seeing increased demand for multi-factor strategies that aim to serve a specific objective of either risk reduction or return enhancement.
In this case it is not just about looking at one criteria but trying to select the companies that score the highest across multiple attributes. Research shows that selecting the right criteria or factor proves difficult and timing those criteria can be challenging. As a result, combining metrics resonates much better with many investors.
Smart beta ETFs are still relatively new to the market and some investors are just getting to grips with single factors. Now multi-factor strategies have started to enter the market there is a whole lot of education to be done to make investors comfortable with them.
‘The world of investing is
no longer about active or passive. It is about portfolio construction and objectives’
We believe the next development will be around active ETFs. This is a comparatively new sector and assets are only about 1% of the overall ETF market in Europe. Interest is growing, however, especially as investors are faced with challenges when it comes to investing in fixed income.
An active ETF exhibits the features of a traditional ETF, such as transparency, low cost and flexibility, but instead of following an index it is ‘benchmark aware’. This means it uses the underlying holdings from a certain universe but the ultimate objective is to beat the performance of that universe.
These tools can be a great complement to other ETFs if an investor has high conviction in certain areas and/or wants to overcome some of the pitfalls.
They also represent a cost-efficient means of access to an active manager who will be able to use his/her judgement, skills and expertise to potentially offer better risk-adjusted returns.
Pick and mix
We are living through exciting times as more solutions come to the market, giving investors a wide array of tools to choose from.
Providers must offer education and guidance as to what investors are looking to achieve and which strategies are best placed to implement their views, either via traditional market-cap ETFs, smart beta, active ETFs or traditional active mutual funds.
The world of investing is no longer about active or passive, nor is it about smart beta versus market cap. It is about portfolio construction and ultimate objectives.
Don’t drop the ball \on Mifid II
There are many contentious issues contained in Mifid II, including the 10% portfolio drop rule, and advisers must play nicely and engage smart tech to stay in the game
Mifid II has proved every bit as problematic as we feared. The development budget consumed across providers, advisers and discretionary fund managers (DFMs) in the lead-up to launch amounts to more millions than anyone cares to add up. And the spending hasn’t stopped.
At The Lang Cat, there are three main areas we believe to be most contentious:
• the 10% portfolio drop rule;
• costs and charges disclosure; and
• the target market.
We issued a questionnaire on these areas to the leading adviser platforms. The results were illuminating and painted a clear picture of a very mixed Mifid II delivery.
There is no room to get into the full detail of our survey here. However, here’s one example of a 10% rule question:
It’s not only a confused picture in terms of which types of portfolio are being reported on; a similar picture emerges right across the 19 questions we asked.
Another key difference is whether the client, adviser and DFM are notified of drops. It’s a mixed bag right across the industry.
Are we beyond help?
Here at The Lang Cat we recently had
a demo of a new piece of kit from software
developer FinoComp, which you might be
familiar with as the technology provider
behind Aegon and Novia’s on-platform
Capital Gains Tax calculators, among
TierDrop is designed to deal with that gnarly 10% portfolio drop. The problem for DFMs is that they are likely to be running their portfolios across several platforms. And it’s difficult for them to see who their individual clients are, because it is advisers that add clients to the models.
Yet most people just about agree that DFMs are on the hook to notify clients if their portfolios do fall into the 10% drop category during any given reporting period. And that can be tricky because, while the DFM is running the models, it doesn’t necessarily have the relevant client level data.
For example, the DFM knows what the performance of each of its portfolios is but doesn’t necessarily know when the client came into the portfolio or, where applicable, which version of it.
Another issue is that platforms have vastly different methods for calculating the 10% drop. For example, clients in the same DFM portfolio on different platforms may receive different 10% drop reports depending on how the platform they are on has carried out the calculations.
TierDrop aims to solve that conundrum by playing back client-specific performance data to DFMs, platforms and advisers. Importantly, it can ingest data across as many platforms as the DFM is using.
It then plays back the number of clients invested, their opening balance, the reporting date and net movement.
It also takes into consideration genuine capital movement and money moved around the portfolio, so that performance reporting is as accurate as it should be.
When someone becomes reportable, the DFM, platform and adviser are informed via an automated email. This is the part where, regardless of who is, or isn’t, on point to inform the investor, can be configured to each provider’s agreed approach.
Currently there are two platforms signed up to the service, Aegon and Novia, and only one DFM, Copia Capital Management. So those portfolios running on either of these two platforms can benefit from the service.
The Lang Cat likes the functionality and it looks great. Clearly, FinoComp is aiming to corner the market – for this and other data-heavy issues – as the one that supplies the clever calculations in the background.
It would be nice to see a common approach across the sector in the UK and there is no doubt that, despite the good intentions of Mifid II, we are some way to it being efficiently realised on the ground.
For TierDrop to make a significant difference across the market, we would clearly need to see both platform and DFM adoption throughout the sector – and that is the challenge here.
Platforms and DFMs have devised their own solutions to this and will undoubtedly argue that their own solutions work fine.
The reason I think we need a centralised solution to issues like this is because of the way in which the centralised investment proposition (CIP) market has evolved.
Access to DFMs is effectively modularised, where you can access most DFMs via 10 or even 20 plus different providers. The same applies to non-discretionary CIPs, which is less of a problem here specifically but is still an issue in the spirit of things.
Add to that picture the existence of discretionary CIPs that aren’t DFMs and providers that specialise in these, such as Parmenion and Raymond James, and you have a real hotchpotch.
This, then, is a classic example of where smart technology can solve the problem but it will take everyone to play nice together – and that is usually the hardest part.
‘Smart technology can solve the problem but it will take everyone to play nice together’
A Word to \the wise
Simonne Gnessen was inspired by \a life-changing adventure across Asia \to form Wise Monkey Financial Coaching \with the aim to help people live the \lives they’ve always dreamed of. \Will Grahame-Clarke hears how
A shiny 50 pence piece from a grandparent could be the beginning of a global fortune, or it could be immediately spent on sweets. It could be the kernel that builds a set of values, like whether to save or invest, and it might also introduce the concept of earning through chores or install a fear of going without.
Financial coach Simonne Gnessen helps clients around the world with their attitudes to money, looking for those formative moments and connecting them to what might be holding people back. She has discovered that even if an adult becomes wealthy it does not necessarily give them perspective and insight into their own financial behaviour.
Typically, clients reach out to Gnessen, a former financial adviser turned financial coach, because they are not attaining their goals despite successful careers.
“I unpack what is causing a client to act in a way that doesn’t best serve them,” says Gnessen. “Coaching is an area where education, mentoring and soft advice meet. It’s a fee-based service. I don’t sell products and there is no agenda.”
‘I unpack what is causing a client to act in a way that doesn’t best serve them. It’s a fee-based service. I don’t sell products, there is no agenda’
Simonne Gnessen, Wise Monkey Financial Coaching
Gnessen decided to become a coach in 2000 after she took a year out to travel around
Asia and Australia. Her trip made her realise how important fulfilling a lifetime goal was and she decided she wanted to enable others to do the same.
As she toured around Australasia, south-east Asia, China and India, she didn’t give a second thought to her old advisory job back in England. She had already turned down an offer to keep the job open.
On the last leg she checked into an internet cafe to see a tempting job offer in her inbox. It was a partner role in a new firm. Mulling the decision on a camel safari in Rajasthan, she decided not to go back to orthodox advice but to do something that digs deeper.
“Fundamentally, I wasn’t prepared to make big compromises. I felt I had evolved from that and I wanted to do something different,” she says of the decision.
Almost two decades later she runs her own coaching outfit, Wise Monkey Financial Coaching, which helps individuals and also trains advisers.
“There has always been a demand for coaching, people have always got themselves into a pickle, especially since the advent of credit cards, but I am noticing a change now.
“Since 2008, people haven’t been able to use their homes like giant cash machines, which has sharpened the need. Very often, people aren’t reaching their goals or they aren’t living the lives they dreamed of.”
‘Advisers are in a privileged position. I would encourage them to help clients be happy by listening more and asking more profound questions’
Gnessen’s clients include successful professionals who are not effective savers, couples in a situation where one has inherited money and they disagree about lifestyle, and prospective divorcees too afraid to make the split permanent.
Sometimes after one partner dies the other might not have any experience of running the household finances while dealing with grief. Signs of trouble for an individual might include borrowing from parents or simply not looking at bank statements.
For international clients, Gnessen always takes the time to understand the local economy, school fees, the cost of home help and the exchange rate. She also recommends that clients use technology such as spending analysis apps to get a quick insight into their spending and to keep track of things before they get out of hand.
As well as working for fee-paying clients she carries out pro bono work, for which she finds there is also huge demand.
Gnessen is also inspired to spread her training to advisers who she hopes will incorporate coaching into their advice.
“This is a growth area of work,” says Gnessen. “Advisers are in a privileged position and I would encourage them to help clients be happy by listening more and asking more profound questions.
“If advisers don’t coach their clients it becomes very easy to collude with the reasons and excuses they give for the decisions they’re making. And those decisions mean they are not living the lives they most profoundly want to live.”
Coaching, she says, is also good business for advisers. It goes beyond helping clients achieve strong financial returns, forging much closer connections that make the job of an adviser “more nourishing” and she has complete conviction that “your clients will love you for it”.
Despite a strong 2017, global bonds took a hit in the first half of this year and tensions \over rate rises and potential trade wars have sparked predictions of a worldwide slowdown
Funds in the Global Bond and Global Corporate Morningstar categories suffered from numerous headwinds in what was an eventful and volatile first half of the year, with the average fund losing 2.5% and 3.4%, respectively.
It was a strong January for most risk-asset returns, continuing the trend of 2017, but fortunes reversed sharply as February reintroduced volatility to financial markets amid concerns about rising inflation.
Taking a hike
The Federal Reserve raised rates twice during the first half of 2018 and has signalled two further hikes to come this year, as inflation reached its target faster than forecasted and unemployment continued to fall.
The European Central Bank announced in June that the QE programme will be phased out by the end of the year, but the forward guidance on rates was perceived as dovish by the market as Mr Draghi also announced interest rates will remain unchanged at least until the summer of 2019.
Tension and turmoil
Political turmoil and global trade tensions also took centre stage, casting fears of slowing global trade. A resurgent US dollar during Q2 2018, along with rising oil prices and interest rates, spurred emerging market volatility, led by Argentina and Turkey.
Overall, government bond returns were broadly flat during the first half of the year, except in Italy, where a surprise collapse of coalition talks drove a dramatic sell-off in Italian government bonds. On the credit side, spreads widened across the board, but most notably in the investment-grade market.
‘Political turmoil and global trade tensions took centre stage in the first half of 2018, casting fears of slowing global trade’
• Templeton Global Bond and Templeton Global Total Return, with Morningstar Analyst Ratings of Silver and Bronze, respectively, continue to be the largest funds in the global bond space, despite suffering some considerable outflows after hitting peak asset around the middle of 2013. Both strategies are co-managed by Michael Hasenstab (pictured) and Sonal Desai, using an identical investment approach.
The main difference between the two funds is that Templeton Global Total Return takes on more credit risk than its government-only sibling, Templeton Global Bond. The managers aim to identify value among currencies, sovereign credit, and interest rates, attempting to find those opportunities early on and watch them play out over several years.
For years, lead manager Hasenstab has mostly avoided low-yielding debt of the US, eurozone and Japan, which dominate most peers’ portfolios. Instead, he has preferred emerging-markets bonds and currencies.
The funds also stand out for their long-time bets against the euro and yen.
The contrarian-minded group has suffered some periods of underperformance but over time, long-term-focused investors have been amply rewarded.
• Pimco GIS Global Bond is another fund that has consistently featured among the largest funds in the global bond space. It holds a Morningstar Analyst Rating of Bronze. The fund has been co-managed by Andrew Balls (pictured), Sachin Gupta and Lorenzo Pagani since September 2014.
In contrast to Templeton’s positioning, the largest allocations here are typically government debt from the US and eurozone. Nevertheless, the fund’s sector and regional weights can shift significantly over short periods. The strategy allows for considerable flexibility, including investments in corporate and securitised credit and emerging market debt, which the team has historically used to good effect.
• Pimco GIS Global Investment Grade Credit has produced exceptional returns over the past three years. Mark Kiesel (pictured) has run this fund since its 2012 inception and the US-domiciled version since 2002. He draws on the firm’s myriad resources for ideas and follows a multi-faceted approach.
Pimco’s macroeconomic analysis gets translated into guidance by the investment committee. This informs the fund’s overall risk level, interest-rate positioning and off-benchmark exposures.
The bottom-up fundamental work of the team’s 50-plus credit analysts, combined with the 20-plus corporate portfolio managers taking the market’s pulse, drive the fund’s credit selection.
The fund holds a Morningstar Analyst Rating of Silver.
• Robeco Global Credits, rated Silver, has delivered solid returns over the past three years through strong credit selection and, to a lesser extent, beta positioning. Lead manager Victor Verberk (pictured) has steered the fund since inception in 2014, supported by two co-managers in an experienced team.
They are supported by Robeco’s 19-strong credit team, that covers both investment grade and high yield bonds. The process combines top-down beta positioning and bottom-up security selection, with an emphasis on the latter. This process gives sufficient leeway – the fund has a maximum tracking error of 5% relative to its benchmark – to add value against the benchmark and peers.
Most of the recent launches have been in the short-duration space or are passive offerings.
• The Robeco Global Credits Short Maturity Fund, launched in 2017, is a short-duration unconstrained global credit fund, managed by lead manager Victor Verberk and backed by the same team steering the Silver-rated Robeco Global Credits.
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