The UK versus international\bond conundrum
Editor Kirsten Hastings introduces the October edition of <i>International Adviser</i>
Welcome to the October 2018 edition of IA Digital. The fourth quarter of the year is in full swing and it looks like it will be a sprint to the finish.
I was delighted to see so many familiar faces at International Adviser’s Fund Links Forum on 11 October. We closed a fantastic day of presentations, discussions and debate with two award ceremonies.
Following rigorous and independent judging processes, our Best Practice Adviser Awards UK and inaugural Global Financial Services Awards recognised some of the biggest players across the industry.
Abacus Financial Consultants’ Kay Pindoria took home the International Young Talent award, while Ailo’s Alan Morgan-Moodie was recognised for his Outstanding Contribution.
Due to retire after an incredible career, we would like to thank Alan for being such a big champion of the life industry and wish him a long and happy retirement.
But the treadmill doesn’t stop. We have launched three initiatives in the past month: NRI Adviser; CPD Corner; and our subscription model.
One thing that will not change, however, is our commitment to bringing our readers the latest news, views and content.
Details on how to subscribe will be available on the IA website.
Kirsten Hastings, editor,
It is strongly suspected, based on HMRC briefings, that the chancellor plans to axe pension allowances and tax relief, which could cause major issues for wealth planning, writes John Lappin
‘Advisers will need to work with their clients who are contributing close to one of the three annual allowances’
Rachel Vahey, product technical manager, Nucleus
It looks as if a clampdown on pension allowances or pension tax relief in the Autumn Budget, to be delivered on 29 October, is just about odds on with the annual allowance in the chancellor’s sights.
Several national newspapers have been briefed by HM Treasury sources to say big changes are being considered, with many suggesting that a cut or even halving of the annual allowance could be on the cards.
Chancellor Philip Hammond is seeking sources of additional revenue to fund pledges on the NHS. Funding for the health service is planned to reach an additional £20.5bn a year by financial year 2023/24, with an average rise of 3.4% each year. During financial year 2019/20, there will be a front-loaded rise of 3.6% (£4.1bn).
At the same time, there are few obvious sources of revenue without political risks.
‘Successive governments have fiddled around the edges of pension legislation’
Martin Tilley, director of technical services, Dentons Pensions
‘It is a nightmare if they cut back the annual allowance. And we are not talking about really high earners’
Kerry Nelson, managing director, Nexus IFA
Here we go again
The pension industry and advisers have seen this all before. Radical changes have been promised only for the government to pull back under a combination of backbench pressure and the complexity of the changes.
At the same time, both the lifetime and annual allowances have been significantly pared back during the past decade from highs of £1.8m and £255,000, respectively.
This time, there seems to be an industry consensus that the chancellor means business, but some say he is already getting an increased tax take from the annual allowance.
Nucleus product technical manager Rachel Vahey said: “Recent statistics published by HMRC showed both the amount of annual allowance tax paid and the number of people reporting they have paid over the annual allowances have increased.
“The sharp increase in the 2016/17 tax year – when the number of people reporting through their self-assessment that their contributions exceeded their annual allowance jumped from 5,430 to 16,590 – probably ties in with the introduction of the tapered annual allowance in April 2016.”
Dentons Pensions director of technical services Martin Tilley said: “A reduction in the annual allowance is possibly the least disruptive of the options on the table, the others being flat rate; a move from exempt-exempt-taxed to taxed-exempt-exempt; a reduced lifetime allowance; a reduction at the level where a tapered allowance applies; or, heaven forbid, the reversal of the wider and more beneficial death benefits from 2015.
“It could upset and disrupt adviser and client contribution strategies.”
In terms of the annual allowance change, he said: “While it will affect mainly the higher end of the market, accountants and advisers often make long-term planning strategies covering several years in advance.
“An example would be the staged purchase of a commercial property where the client’s Sipp may acquire 50% of the property in year one and it is intended that future contributions will fund subsequent tranches of additional property purchase in later years.
“Similarly, pension schemes can borrow funds to acquire assets, such as commercial property and plan repayments of that debt from future contributions. Any reduction in the maximum permitted annual allowance is going to impact any such strategy,” said Tilley.
Vahey noted: “More cuts to the annual allowance would no doubt have a further effect. Advisers will need to work with their clients who are contributing close to one of the three annual allowances to understand what the implications are.
“Some clients may want to change their contribution level to avoid a tax charge. But some clients – for example public sector workers – may not be able to easily reduce the contribution level and may end up having to pay an annual allowance charge.”
She also highlighted that the way the tapered annual allowance works could create problems for higher earners.
“Many will not know what their final remuneration is until close to or even after the end of the tax year, and therefore won’t know the amount of their tapered annual allowance for that tax year.
“They may be in danger of exceeding any tapered annual allowance and will need their adviser to help manage the risk.”
All the experts are also worried about
what message it might send about saving
in a pension.
Tilley said: “Irrespective of the market it directly affects, it also sends the message of ‘continued fiddling’. Successive governments have consistently fiddled around the edges of pension legislation using pensions as a short-term financial tool whereas they should be looked at exclusively as a long-term stable savings proposition.
“It is no surprise that the customer is not inclined to engage in contributions to a long-term proposition, which, it seems, can be changed at the whim of the government
of the time.
“While the current pension regime may not be perfect, now is not the time to engage in a deep investigation for substantial and major rule changes. Nor is it the time to fiddle round the edges.”
Advisers agree. Nexus IFA managing director Kerry Nelson said: “It is a nightmare if they cut back the annual allowance. It used to be £255,000. Now we are not talking about really high earners but middle earners, especially if you halve it to £20,000.
“That is not a meaningful amount. They want to send a message to the individual to make contributions to a pension and to be self-reliant but they are putting in barriers instead of incentives.
“It may hit those people who have set up a company and started a business or are in a high-flying career but have started at relatively low level. If we have a run of low allowances, people who planned to carry forward unused relief may be very disappointed in coming years. It is much less useful to be carrying forward to £20,000.”
Nelson said if taxes have to rise it should be from general taxation: “If you need to bring in more money, the chancellor should increase basic tax rates and national insurance, then everyone contributes apart from the very low earners, while those paying higher tax pay more anyway.”
Righting the rules
Financial ombudsman finds in favour of pension scam victims, advisers to face re-evaluation test and new rules for pension transfers are among the stories making a splash during the past month
Ombudsman seeks compensation for victims of pension scams
The UK’s Financial Ombudsman Service (FOS) has found in favour of five individuals who lost nearly £100,000 after transferring their savings following a free pension review.
Specialist financial mis-selling law firm Anthony Philip James & Co (APJ) represented the claimants who each transferred between £13,000 and £26,000 into self-invested personal pensions (Sipps) with provider Guinness Mahon.
APJ said the FOS rulings challenged
the argument of the Sipp provider that
it only accepted business on an execution-
only basis, meaning it was not liable for any losses suffered.
The decision paves the way for thousands of clients, who have lost money after free pension reviews by scam advisers, to claim back their money, the law firm said.
Victims were cold called by unregulated introducer Avacade and persuaded to invest their pension pots into Ethical Forestry, a scheme offering guaranteed returns of up to 15% from tree plantations in Costa Rica. The scheme failed after the plantation was hit by a hurricane.
In August, the FCA announced that the directors of Avacade were subject to civil proceedings after they were found responsible for £86m in misleading and scam pension transfers affecting at least 2,000 people.
Glyn Taylor, solicitor at APJ, said: “Our clients have all been misled by unscrupulous advisers at Avacade who have subsequently tried to dodge all responsibility. These clients simply wouldn’t have moved their money out of their original pensions had it not been for the unsolicited advice from Avacade.
“The FOS decisions establish that Guinness Mahon should have known that it would not be treating the individuals fairly if it accepted business from Avacade, so it should have refused the introduction of business.”
The FOS ruled that APJ clients should receive compensation from Guinness Mahon to put them back in the position they would have been had they not transferred their pensions from their original schemes.
Growing pains: Avacade’s Costa Rican tree plantation scheme was deemed misleading and a scam
Regulator rules on pension transfers
The Financial Conduct Authority (FCA) is taking forward all but one of its proposals aimed at improving pension transfer advice, some of which will come into force immediately.
The rules set out how pension transfer advice should be given where consumers are considering giving up safeguarded benefits, primarily from defined benefit (DB) to defined contribution (DC) schemes:
• Pension transfer specialists will need to hold the Level 4 qualification for providing advice on investments no later than 1 October 2020.
• Where there are two advisers involved in the transfer process, their respective roles and charges must be made clear to the client.
• Stricter perimeter guidance on investment triage will be introduced.
• Current risk assessment tools focus solely on attitudes to investments, overlooking “the different risks from clients giving up certainty of income”. The FCA will clarify its expectations around how advisers should consider risk attitudes to safeguarded and flexible schemes.
• Firms will have to provide a suitability report to clients, regardless of whether the advice is to transfer or not.
The proposal to change the definition of pension transfer to include reference to safeguarded and flexible benefits was not taken forward.
CII test raises the bar for advisers
An assessment aimed at raising the standards and competence of financial advisers in the UK has been introduced by the Chartered Insurance Institute (CII), effective from 1 October 2018.
The CII collaborated with the FCA to create the non-mandatory Regulated Retail Investment Adviser Re-evaluation test of the Level 4 Diploma in Financial Planning.
Firms will be encouraged to use the test, which the FCA may use as a supervisory tool if it thinks “it is appropriate to ask firms to re-test specific advisers”.
The objective of the assessment is to identify areas of strength and weakness in technical knowledge and its application.
The test contains 100 questions across areas of the CII’s RO1-5 syllabi. It provides firms with the ability to independently assess their advisers’ knowledge and development needs against the industry standard.
Clarity \of vision
With challenges and opportunities on the horizon, Paul Thompson, group CEO of LCCG, discusses how the Group’s Utmost Wealth Solutions business is progressing and its ongoing focus on meeting the needs of professional advisers and their clients
Utmost Wealth Solutions has been highly acquisitive over the past two years. What has been your strategy for growth?
We have a clear focus on being the leader in the creation of sophisticated wealth solutions for the international mass-affluent, high-net-worth (HNW) and ultra high-net-worth (UHNW) markets.
During the past two years, we have been putting in place the building blocks that deliver the right platforms, the right geographical locations and, most importantly, the right people.
We are in a business where relationships are paramount. Having the people who understand that, and who can deliver the right products, technical support and service, is critical to our success.
We are very much an open-book business and are achieving both organic and
inorganic growth. Where we acquire businesses, we assess where we can create efficiencies by, for example, adopting a common IT platform across the group of companies. This ultimately drives value
‘We are in a business where relationships are paramount. Having the people who understand
that is critical to our success’
Is it the case that you are attracted
by the profits available?
Of course, profitability is a major consideration. Businesses that remain profitable create both sustainability and financial strength.
Sustainability ensures we will remain in business and enhance the financial strength that provides our policyholders with the reassurance that their wealth, and that of their heirs, is held by a business that takes its governance and responsibilities seriously.
Working within tighter regulatory
solvency requirements, sound financial strength gives us the platform to invest in new developments that may not be available to less robust businesses.
You have acquired businesses that were major household names. How smooth has the transition been?
We have successfully raised the profile of the Utmost brand in the specialist markets within which we operate.
While losing the Axa name in the UK may have been a challenge, we are now at the point where business levels written under the previous Axa companies exceed those written prior to the rebrand to Utmost.
This is testament to the quality of our award-winning products, the service we provide and our people.
The acquisition of Generali PanEurope in Ireland, now Utmost PanEurope, has provided geographical diversification but still within the specialist market of wealth management solutions for HNW and UHNW clients. While we now have representation throughout Europe, our main market is Italy.
Losing the Generali name in this key market could have been difficult but the benefit of being a specialist has come to the fore, with professional advisers understanding our focus. This has been helped by continuity of frontline and servicing staff.
This is not a sideline to a large corporate portfolio; this is what we do and do well.
‘Working within tighter regulatory solvency requirements, financial strength gives us the platform to invest in new developments’
Do you have further expansion plans?
In the short term, further geographical diversification is on the horizon with the acquisition of Generali Worldwide in Guernsey, which is due to complete in
the first quarter of 2019. This will give us a truly global footprint and will add an enhanced regular contribution capability
to our future portfolio.
Some may say the Generali Worldwide product line is not a natural fit with the current Utmost portfolio. While this may be true to some extent, we are signalling a clear move to use the regular contribution platform of what will become Utmost Worldwide, moving the product line to fit within the Utmost approach to business, which is value for policyholders.
A consideration here is the move within the Isle of Man regulatory regime in respect of commission disclosure. We are fully supportive of this development and consider it to be a significant increase in transparency for customers and one that can only be followed in other jurisdictions.
Longer term, we are always considering opportunities that may help us develop our specialism further.
How are you factoring Brexit uncertainty into your growth plans?
Who knows at this stage whether it will be a hard or soft Brexit, whether those who want a second referendum will get their way and if Brexit will happen at all.
While it is impossible to provide cast-iron guarantees, with bases in the Isle of Man and Ireland, Utmost Wealth Solutions is better-placed than others. This dual-jurisdiction hedge has enabled us to consider an array of solutions to provide continuity of service to advisers and their clients.
We watch with interest as the Brexit negotiations continue. However, we are clear that our focus and experience as specialists in developing wealth management solutions for HNW and UHNW clients, positions us well to react to whatever happens on 29 March 2019.
With the UK Office of Tax Simplification carrying out consultation on IHT and the taxation of savings income, are you concerned about the impact of this?
What has been constant in our market is continued change. It’s a cliche but it is as equally valid today as it has always been. We work in a dynamic marketplace where there is a greater focus on legitimate tax planning and treating customers fairly.
We welcome such changes, provided they deliver against these two tenets. We comply fully with our regulatory obligations and will continue to do so. In addition, our technical teams are fully conversant with the relevant issues and are actively involved in assessing the impact of possible future changes.
‘We have a defined strategy for growth but with a clear focus on specialist wealth management solutions’
What sets you apart from your competitors?
We have a strong heritage, with the fleet-of-foot of a new brand. Youth and experience.
We have a defined strategy for growth
and geographical diversification but
with a clear focus on specialist wealth management solutions for the HNW/
Importantly, we are independent.
This gives us the ability to set our
own course and focus on the quick
delivery of client-focused wealth
We are specialists. We are entirely investment agnostic in that we don’t have our own fund range.
Our expertise lies in the tax wrapper
and our technical support. With around
200 discretionary fund manager
relationships we support considerable investment flexibility.
In addition, all our business is entirely intermediated. We don’t compete with advisers and leave the provision of advice to these professionals.
We are Utmost Wealth Solutions – one platform, one service, one brand. We are a leader in our market focused on building the number one brand.
As the world of financial advice needs to evolve to meet a host of new challenges it is time to unleash the superpower that already exists within each and every business
In the first article of this series we underlined the challenges facing the industry. With time against us, the profession needs to find the single thing that could tackle – or even eliminate – some of these global game-changing challenges. Our understanding and depth of engagement with the new world of financial planning can help us do this. So, what is this new world?
Think about your typical client’s journey and the key stages you go through as a team. You will recognise that, in one way or another, most of these stages rely on you as the financial planner.
This dependency has come about because of a lack of good support. Do you have the right people in your team so you can effectively delegate and/or let go of some of the less critical stages of the process?
Perhaps in the past you could just about pull this off. But now, with new clients, the increase in administrative demands and the greater intimacy your clients require, it is simply too much.
Brave new world
We have to change the way we work. First of all, the sale becomes the job of the business. Selling is not a dirty word. The business needs a marketing plan that promotes the brand of the business, not just the brand of the individual financial planner.
Building and nurturing relationships becomes the job of the whole team, whether that means face-to-face, by email or telephone. At the very least, each team member should have a profile on the business website.
I believe the role of the financial planner, when carried out in isolation, will become an unregulated/unauthorised role. It does not need high technical abilities or qualifications.
Life seems to be getting busier by the day, meaning your clients need much more than just money; they need mentoring, support and guidance without prejudice.
The task of moving the pieces around the chessboard of the client’s life takes a different kind of thinking from that of a financial life coach or a financial planner. This approach is more logistical and factual. This role has traditionally required the skills of only a financial adviser but I believe this is where the shift will happen.
Compliance has increased, and the need for knowledge about a broader range of products and solutions is rising. Regulators require you to do more checks and provide more illustrations, comparisons and reports. You are under more pressure to demonstrate the technical thinking behind the recommendations and advice you are offering.
‘Do you have the right people in your team so that you can effectively delegate and/or let go of some of the less critical stages of the process?’
This is where I believe the paraplanner comes in. This is the new role that can be your superpower. It is the paraplanner that will come up with the solutions you need to satisfy all the objectives, dreams and aspirations of your clients.
Paraplanners know everything about every product provider, solution and strategy. They are geniuses in their area and they love processes. They are very happy to work from the office, but do not, under any circumstances, expect them to sell. Any hint that this is on the cards and they will leave before you have time to blink.
Their skills are specific, and in some countries they may even be regulated and authorised to give advice and provide recommendations directly. Paraplanners may in time replace the role of the financial adviser, clearing a path for financial planners to concentrate on helping their clients.
Now I bet you can recognise people within your professional circles who fit this profile. In fact, you probably know financial advisers and maybe even financial planners who fit the bill, too.
The engine room
Administrators generally have a high level of organisational skill, some basic technical knowledge and are reasonably IT literate. These are your client services assistants and your business administrators. They love paperwork, organising filing systems and typing letters. They are driven to complete every task they start.
These are the people who do all the background work and get stuff done. They have a general understanding of products and providers but it is general and relatively low level. These people are good all-rounders who can turn a hand to most things, and your business would be lost without them.
These are not your paraplanners. For many of you, most of your current team members – excluding financial planners and advisers – would fall into this category.
Think about this new way of working as a business relay race where one person/role starts the job and then hands over to the next. It is this collaborative approach to the delivery of financial planning and advice services that will make the difference.
A hand-picked, highly skilled team, working together by design to deliver positive outcomes is what is going to transform financial services. So many of your current team are in limbo. If you don’t believe me, ask them to describe their role.
For decades, financial planners and advisers have been justifiably celebrated. The relationships you have built with your clients are remarkable but while we have been telling the world how great you are, we have also been suggesting that anyone who isn’t a financial planner or adviser isn’t worthy.
Hence administration is still considered as a second-class role and is totally misunderstood. If you are an administrator and you don’t want to be a financial planner or adviser, what does the future hold for you?
For the moment, there are no other roles or opportunities on offer. This is a tragedy which, considering the global changes upon us, will only compound this problem if we don’t embrace the new role of paraplanner and the opportunities it uncovers.
My dream is to build a global marketplace of paraplanners, all certified to a new international standard and all working to a consistent role profile at the same level of professional excellence.
They would support financial planners and financial advisers across the world, enabling them to do the job that they came into this profession to do, and that is to change the lives of their clients.
Without a high level of support for, and clarity about, the roles within your team, this is merely a pipe dream. As much as you want it, you won’t get it by simply hiring more of the same type of people doing the same tasks.
Without the right team, a business will never achieve its true potential on its own. It is time for the change to happen.
For more information go to: http://standardsinternational.co.uk/ certification/theparaplannerstandard/
‘A hand-picked, highly skilled team, working together by design is what is going to transform financial services’
A clean sweep
In the second article of this two-part series, Mike Foxall explains how the dusting off of the long-neglected 50-year-old rules around international wealth insurance offers IFAs an opportunity to help UK resident non-doms
For many of the reasons outlined in the first article last month, such as changes to remittance basis charges and the concept of deemed domicile, some leading private client lawyers and international accountants are now looking to use a long-ignored, but particularly effective, wealth planning structure: international wealth insurance, more commonly known in the UK as an offshore bond.
Focus on the positive
The insurance structure of this bond has a number of very positive attributes when working with UK resident non-domiciles (UK RNDs) and with wealthy individuals who are internationally mobile.
Wealth insurance has a very specific tax regime in the UK – chargeable event legislation – that was first introduced in 1968 and most recently updated in the Income Tax (Trading and Other Income) Act, or ITTOIA 2005, chapter 9, part 4.
These rules have been reviewed several times during their 50-year history and each time have been reinforced and re-embedded into the legislation.
Crucially for this client segment,
civil law jurisdictions also have very clear regulation around wealth insurance, delivering tax deferral, reducing the longer-term tax burden and, in some countries, reducing succession taxes.
Nothing says, ‘I have made plans to leave’ more than a structure that is fundamentally understood and has known regulatory and beneficial tax positioning in just about every other country in Europe and across much of the globe.
‘Accountants are now looking to use a long-ignored, but particularly effective, wealth planning structure’
Structure and function
The insured structure negates the need for multiple segregated accounts to hold various incomes, gains and capital. All gains are offset by losses as they occur.
Wealth insurance also removes the need to avoid investing in UK situs assets, which is better for ‘UK PLC’ and carries less risk of an accidental remittance tax issue.
However, care is still needed with regard to the underlying investments and how these are selected. To avoid a highly personalised bond structure, if the client/policyholder wishes to select the underlying assets, they will be restricted to choosing from open-ended collective funds only.
Alternatively, they can agree a clear mandate with an appropriately qualified asset manager who will then select from a much wider pool of assets but at their total discretion and without influence from the policyholder.
By itself, wealth insurance does not reduce UK inheritance tax (IHT). This is why the establishment of a protected trust for a UK RND, prior to becoming deemed-domicile, is still a crucial part of their planning.
But combining the trust with wealth insurance will provide a much greater capacity to later transfer the policy cross-border and, where necessary, remove the trust structure while still maintaining a recognised tax deferral vehicle in the new jurisdiction.
It is also important to recognise all taxable withdrawals from the insurance structure are on the arising basis of tax and fall within the income tax regime, even for UK RNDs.
The remittance basis of tax is not applicable here but it does mean that if a UK RND’s offshore assets are liquid and investable they might choose to hold them via the insured structure and so avoid paying £30,000 or £60,000 to claim the remittance basis of tax.
The Finance No 2 Act 2017 also introduced two transitional arrangements or relief opportunities: (1) Those who become deemed-domicile for all tax purposes as at 6 April 2017 can rebase directly held assets, effectively revaluing these assets for CGT purposes at 5 April 2017; and (2) there is an opportunity, open to all UK RNDs but only until 5 April 2019, which offers the chance to ‘cleanse’ or untangle mixed/tainted assets by identifying originally clean, or rebased, capital and then switching into a new clean account.
Both of these arrangements offer the possibility for UK RNDs to uncover pockets of clean capital that might then be best managed via an offshore insurance structure.
Indeed, any separated ‘income’ might also be placed into a separate policy, for ongoing tax deferral and potential opportunities to slowly lose the unremitted tax charges.
Given the additional complexity, there must be early consideration – ie soon after arrival in the UK – of wealth insurance for UK RNDs intending to remain in the UK for any period exceeding several years.
‘If UK advisers are willing to grow their knowledge
around UK RNDs, a clear opportunity awaits’
Regulated products, regulated advisers
While the tax and legal professions are now turning to the offshore bond as part of the ongoing planning for their wealthy UK RND clientele, its introduction causes them an administrative problem.
Under FCA rules, the offshore bond is a regulated product and must be positioned by an adviser with suitable permissions. Few, if any, have these permissions.
While in the past they may have
simply turned to a cross-border insurance provider, a combination of RDR, Mifid II
and the Insurance Distribution Directive means they need to align with top-quality financial advisers in order to deliver
There are a small number of EEA passported specialist advisers already interacting with some of the larger firms but, if UK IFAs are willing to grow their knowledge around the cross-border aspect of the offshore bond structure and the needs of UK RNDs, including deemed domiciles, a clear and attractive opportunity awaits.
Home or away?
The choice between international and \UK bonds is a complex one, and the weighing\ up of an individual’s needs is vital
The most fundamental question around investing in a bond is jurisdiction. Should clients invest in the UK or internationally? There is clearly no right or wrong answer; it all comes down to the needs of an individual.
Both UK and international bonds have their strengths, which vary from full open architecture to the 20% tax credit on UK bond gains, among other things. To help choose between international and UK jurisdictions the experts at Canada Life have put together a straightforward guide comparing the options.
What is the taxation position?
From an international perspective, investments can grow free of UK income tax and capital gains tax. It may not be possible to reclaim withholding tax suffered on some foreign income received.
On the UK side, the underlying fund pays 20% corporation tax on any interest, deemed capital gains and any realised gains. UK dividend income is not subject to tax in the fund. On some funds and assets the actual tax paid in the fund may be less than 20%.
What are the investment options?
International bonds can be open-architecture, offering policyholders access to almost any permissible collective fund, which can appeal to more sophisticated investors.
They can also be used with investment platforms or investment managers and offer the ability to invest outside of the normal range of permissible investments.
UK bonds generally only offer a fettered fund range available from the providers. This can cover a wide range of asset classes and fund types.
Are there any cost considerations?
The costs of an international bond generally are higher. There could be an initial charge, ongoing administration charges and usually a fixed quarterly fee that is reviewed annually.
There are also transaction fees when the provider is involved in switching between investments. In contrast, the costs for UK bonds are usually lower and more transparent, involving a wrapper and a fund charge.
What about insurable interest?
Whether insurable interest is needed depends on the jurisdiction. For example, Isle of Man legislation does not include any requirement but the policyholder will need to provide death certificates. For a UK bond insurable interest should exist at outset between the policyholders and the lives assured.
These are the fundamental questions around investing in a bond but they are by no means the only questions.
The needs of the client must be at the heart of the decision and you must take into account all of their circumstances.
New model army
Fears over robo-advice are receding as we approach a watershed moment \in adviser acceptance of new technologies and online platforms
In an age where everyone is connected and information is at the touch of a button, it is no surprise that we are now seeing the international adviser community increasingly adopting technology and doing business online. Technology for this community should serve to speed up transactions, improve efficiencies and ultimately create better outcomes for clients.
The Retail Distribution Review (RDR) in the UK demonstrated the central role that online adviser platforms can play in helping to transition an adviser’s business model towards more efficient, repeatable advice. This is due to the rigorous process and client reporting that it enables.
More and more we are seeing offshore platforms aiding international advisers with the same processes. While the pace of change differs across global regions, it is inevitable that online platform adoption will continue to increase, perhaps until almost all new business is through platforms in the international advice market.
‘A digital presence is now an essential requirement’
The viewpoint that technology will have a positive impact is shared by the vast majority of the international adviser community. A recent survey, commissioned for Old Mutual International, of 180 respondents from across the UK, Europe, Middle East and Asia, found that only 2% of advisers believe technology does not help their business.
The survey also showed that advisers are placing more business via providers’ online platforms. A sizeable 41% of international advisers are currently placing new business directly through providers’ online platforms, with the majority of advisers (55%) believing there will be an increase in the use of online platforms in the next 12 months.
While these results show that platform adoption in the international adviser community has some way to go, little by little the merits of doing business using an online platform are starting to shine through.
Indeed, the advantages of using platforms do seem to be widely understood.
For example, when advisers were asked what kind of benefits platforms could bring to their business, 76% said that technology makes it more efficient to manage clients on a daily basis, helping with tasks such as valuations, dealing and withdrawals. Ease of portfolio management (62%) and client online access (54%) were also seen as very beneficial features of providers’ platforms.
‘Online platform adoption will continue to increase, until almost all new business is through platforms’
All of this indicates that we may be at something of a watershed moment. Forward-thinking advisers are seeing the benefits of an online platform to build value in their businesses by aiding repeatable advice to segments of clients and to provide a better experience and more consistent outcomes.
Advisers are also supporting shifting customer expectations, which have moved so fundamentally that a digital presence is now an essential requirement.
The growth of online banking – and mobile banking in particular, which is set to overtake online banking in the UK in 2019, according to financial services analyst CACI1 – may mean other financial sectors have to step up to cater for the 24/7 access that clients require.
In the UK, much of this growth is now driven by older consumers in rural areas and coastal towns. However, this also translates to highly mobile international investors. For them, technology can prove to be incredibly efficient, by streamlining the decision making process and getting them closer to their investments at their convenience.
The wider industry backdrop is the growth of fintech markets globally, and the possibilities undoubtedly have a long way to run. Today, the main success story for integrating fintech into advice – so called ‘robo advice’ – has been in the US.
Hybrids of robo and face-to-face financial advice have emerged as investors increasingly require the convenience of technology alongside the intimacy and personalisation of advice in person. This is a model advisers are well placed to replicate globally.
The typical view is that, as technology becomes more and more ingrained in everyday life, we lose the valuable face-to-face contact that can provide better results and, by and large, is favoured by clients.
I believe that the adoption of online platforms by advisers can actually have the inverse effect, by allowing greater automation of services to free up more time to spend face-to-face with clients.
There are now systems able to significantly reduce the amount of time taken to carry out a wide range of tasks, including identifying and agreeing client objectives, performing risk profiling and suitability assessments, researching and selecting products and executing transactions.
The end result is that advisers’ core competencies, such as customer service, behavioural finance and building clients’ trust, come to the fore as the most important attributes. It is still a people business – but a clear technology strategy will be an enabler of business growth.
1Source: The future of digital banking: how
changing behaviours will impact the channels your customers use, CACI
Clients in Ireland are increasingly\ looking for international capability\ in their adviser, according to\ OpesFidelio Ireland owners\ Nick and Rachel Reid. Will\ Grahame-Clarke finds out more
Nick and Rachel Reid’s financial
advice firm, OpesFidelio Ireland,
is very much a family affair, which gives them an immediate rapport with other family-run businesses.
The couple divides the company’s
domestic and foreign duties between them, with Rachel handling the domestic clients and Nick looking after those that have cross-border needs.
Nick’s father Robert Reid founded the business in Dublin in 1990, which was originally known as Home and Overseas. He retired in 2006 and Rachel came onboard shortly afterwards.
More recently, Rachel’s younger brother Colin Hudson joined the business, further augmenting the family connection.
In 2017, the company became an independent member of the OpesFidelio network, which is owned and managed by financial planning firm Aisa.
Aisa Group, which operates a fee-only payment structure, was founded by James Pearcy-Caldwell with business partner Clive Tutton in 1999.
Asked if being a couple has its advantages
in the workplace, Nick admits they stick
to mutually agreed ground rules.
This includes never mentioning work when they are at home.
Nick and Rachel’s respective client groups are also quite different, which helps.
The couple united through an ambition to continually improve their client offering, in how they go about their work and the solutions they offer.
“We spend a lot of time thinking about how our clients are going to reach their goals and how we can work together in a partnership,” says Rachel.
A family affair: Nick and Rachel Reid are directors, and Rachel’s brother, Colin Hudson (right), is an adviser
To that end, they brought in advice consultant Eamon Twomey, who has
helped them focus on their core
offering and articulate their proposition
“We’ve seen a lot of changes in the industry over the years,” says Nick.
“The international aspect of the
business was something that I inherited
from my father.
‘More people are transitioning jobs to other jurisdictions. You can’t offer one-size-fits-all advice anymore’
Rachel Reid, director, OpesFidelio Ireland
“In the early days I travelled a lot but now we have things like Skype there is less of a need to do so. However, we always seek to meet new clients in person during the onboarding process, and try to build a recurring advice-led income.
“We’ve always tried to mirror the UK advice model and we continue to do that with an emphasis on building a long-term relationship with our clients.
“Over the past two years we have seen a shift of emphasis from traditional offshore bonds to platforms, because of the transparency in charges but also our ability to provide clients with end-to-end wealth management that can consolidate all their assets within a cost-effective structure.’’
For Nick, it is a question of upholding his father’s principles and the ethical model he established for the business.
“His example was to be honest, act with integrity and to earn the client’s trust over the long term, while being open in everything you do,” he says.
“The more open we are with our clients, the more open they are with us about their money and what they want to achieve. This ensures we are in the best position to be able to help and advise them.”
Nick also believes his career as a commissioned officer in the Princess of Wales’ Royal Regiment stood him in good stead. In 1995, he set his sights on becoming an adviser, spending time with Irish Life International and Clerical Medical in the Isle of Man.
“I enjoyed the work and the travelling,” he says. “Meeting new people continues to be a tremendous experience.”
Rachel met Nick shortly after his move to Dublin. Her background is in the domestic advice business, having worked at Prudential and the Bank of Ireland in technical services and subsequently as a financial planner.
It turned out to be a match made in heaven for the company, which has thrived on the complementary skills.
“I am quite specialised in what I do, particularly in relation to pensions,
‘The more open we are with our clients, the more they are open with us about their money’
Nick Reid, director, OpesFidelio Ireland
but it has proved very useful to the business,” says Rachel.
“More people are transitioning jobs to other jurisdictions. You can’t offer one-size-fits-all advice anymore.”
The ability to work with like-minded individuals was one of the main reasons
Nick and Rachel decided to join the OpesFidelio network.
Being able to share knowledge with advisers that are based in different jurisdictions has been a huge benefit.
As a member of the network, they have access to professional expertise from financial advisers all around the world.
For example, while they may know very little about pension and tax implications for a specific client in Spain, Rachel would have the expertise to look after a client resident in Ireland or a client based overseas holding an Irish pension.
This is where her specialist knowledge comes into play within the network, and the same is true for other members.
The trade stand-off between the \US and China has weighed heavily \on Asian equities this year but there \are still a number of markets in the \sector that have bucked the trend
Asian equities were subdued in the third quarter, as the MSCI AC Asia ex Japan Index delivered a loss of 0.35% in GBP terms compared with a return of 5.57% of the MSCI AC World. The performance was weighed down by China as escalating trade tensions dampened risk appetite.
Donald Trump has intensified his trade war with China by imposing tariffs of $200bn on Chinese goods, while China hit back with tariffs on an additional $60bn of imports from the US in retaliation.
There was a reversal in fortunes during the quarter as Chinese tech stocks, such as Tencent, Baidu and Alibaba, the market darlings of 2017, underperformed year to date. Indian equity was the next-worst group, losing 1% in the quarter, as the Indian rupee plunged to an all-time low versus the dollar.
Bucking the trend
Elsewhere, Thailand’s stock market did well, thanks to its lowest perceived currency risk and higher oil prices. The Philippines benefited from the central bank’s decision to raise interest rates as the market welcomed the attempt to relieve inflationary pressures.
Consumer sentiment in Malaysia improved due to the cutting of the Goods & Services Tax rate to zero. South Korea’s economic growth remained on a solid upward trend, benefiting from steady growth in industrial production as well as resilient external demand.
Most commentators believe Asian markets will remain volatile, given geopolitical uncertainties and shifts in monetary policy. Trade tensions between the US and China will weigh on investors’ minds. They will also be watching how major central banks will manage liquidity and currency fluctuations. That said, this environment should provide opportunities for talented active managers.
‘Asian equities were subdued as escalating trade tensions dampened risk appetite’
• Stewart Investors Asia Pacific Leaders has been managed by David Gait (pictured above) from July 2016 following the retirement of Angus Tulloch. Gait is an experienced investor who joined the group in 1997 and has built an impressive track record on the Stewart Investors Asia Pacific Sustainability Fund, which he has run since 2005.
The approach builds on the Stewart Investors house style, which targets high-quality companies that offer predictable earnings growth but emphasises names that are able to benefit from the sustainable development of the countries in which they operate. The fund holds a Morningstar Analyst Rating of Silver.
• There has been a recent change at the top for Schroder ISF Asian Opportunities.
Robin Parbrook relinquished his lead portfolio manager duties in December 2017, after having steered the fund since October 2010.
Toby Hudson (pictured right) stepped up to take his place.
Hudson has 25 years of investment experience and worked on this strategy via its various institutional mandates with Parbrook during the past decade. He uses the same well-established, rigorous bottom-up stock-selection process that focuses on quality and growth. The fund has a Morningstar Analyst Rating of Silver.
• Investec GSF Asian Equity has been managed by Greg Kuhnert since 2005. Kuhnert uses Investec’s trademark process, based on the 4Factor model, a proprietary quantitative screen. The model assesses value, quality/strategy, earnings momentum and share price momentum.
The approach combines the objectivity of the 4Factor process with fundamental analysis. Kuhnert has been able to successfully execute the approach, which has led to strong risk-adjusted returns over the long term. The fund is rated Silver by Morningstar.
• Invesco Asian has a strong record versus peers and the benchmark. It is managed by William Lam (pictured) who officially became sole manager in May 2017, although he had
co-managed the fund alongside Stuart Parks from 2015, responsible for stock selection and idea generation.
Parks is due to retire in July 2019 and although he has been responsible for providing macro input for the team’s portfolios, we don’t believe his departure should have a significant impact, given the fund’s emphasis on bottom-up stock selection. This fund is rated Bronze by Morningstar.
• Fidelity Asia Pacific Opportunities has been managed by Anthony Srom since its launch in 2014. The process applied here is best described as high-conviction and contrarian, with no demonstrative style or market capitalisation bias.
The key features are fundamentals,
market sentiment and valuation. In assessing fundamentals, consideration is given to a firm’s financial strength, industry structure, management expertise and accounting
quality. The fund tends to have between
25 and 35 names with wide latitude
at sector and country levels. It is rated
Bronze by Morningstar.
• JPM Asia Growth benefits from veterans Joanna Kwok and Mark Davids, who each have more than 20 years of investment experience. The deep resources of the emerging markets and Asia Pacific team at JPM provides the managers the support they need.
The process follows the same quality/growth bias as the firm’s equity-based strategies managed across the region. The team looks for structural growth ideas – firms with quality franchises, consistent earnings streams and solid returns on equity. The fund has a Morningstar analyst rating of Bronze.
• Newcomers within Asian ex Japan equities include Matthews Asia Funds Asia ex Japan Dividend, which is managed by Robert Horrocks, Sherwood Zhang and Yu Zhang, with the support of other members of the Matthews International capital management team. The overall team is experienced and benefits from a wide variety of Asian expertise. Morningstar highly rates a number of Matthews strategies.
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