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Regulatory costs are nothing new for advice firms, but as these fees refuse to decline and the number of advisers fails to grow, IFAs have questioned the impact of regulation on their profession.

March was a bad month. The Financial Conduct Authority (FCA) outlined plans to increase adviser fees by 10% to £75 million for the next 12 months. The Money Advice Service (MAS) did its part to reduce its budget for money advice by £8.9 million, but the amount the FCA allocated to advisers to pay increased by 16% from £3.6 million in 2014/15 to £4.2 million for the new financial year.

The March madness was compounded by the Financial Services Compensation Scheme (FSCS) sending out invoices for a £20 million interim levy to pension advisers for bad advice to transfer funds from existing pension funds into Sipps.

Hits on advisers’ pockets

Advisers’ direct costs for the FCA, Financial Ombudsman Service (FOS), FSCS, MAS and Pension Wise are £289 million for 2015/16. This is 63% higher than advisers’ equivalent costs for 2011/12, which were £177.2 million.

There could be more pain to come. The FCA will update advisers shortly over capital adequacy rules it deferred in 2013. The rules, which it planned to introduce between December 2015 and 2017, require advisers to hold the minimum of £15,000 or four weeks’ expenditure in the first year. That will rise to the minimum of £15,000 or eight weeks’ expenditure in 2016, and £20,000 or 13 weeks’ expenditure in 2017 (see table below).

Add to these bills the cost of compliance support, professional indemnity insurance and consumer credit licenses and it is no wonder advisers are feeling the pressure.

In June 2014, the Association of Professional Financial Advisers (Apfa) found firms with an annual income of less than £1 million were spending 3% of their income on direct fees and levies from the regulator and 9% on indirect regulatory costs

Receiving unsolicited phone calls at work can be a nuisance at the best of times, but asset management professionals are being advised not to hang up on headhunters, even if they are happy in their current role.
For fund houses looking to fill key positions, using a specialist recruitment firm can take the legwork out of finding quality candidates and help them whittle down hundreds of individuals that might have otherwise responded directly to a job advert.
“In addition to already having a strong network of existing candidates, a good headhunter will file through every single potential applicant, both the relevant and the not so relevant,” says James Dewhirst, director at Investment Management Partners, a specialist buyside recruitment firm.
There are “myriad approaches” headhunters will use to make contact with potential candidates, says Mr Dewhirst, such as approaching people they previously worked with, using referrals from other industry professionals or names obtained via online networks such as LinkedIn.
“If the headhunter has good industry knowledge, they can also target key candidates specifically from their client’s rival firms,” says Mr Dewhirst.
While the more cautious may feel that it is best to ignore an unexpected phone call, email or LinkedIn message, the advice from those who have secured top positions after being headhunted is to take these approaches seriously.
John Poole, former head of fund services at Baring Asset Management, says he was contacted by headhunters on “several occasions” during his time in the asset management industry.
“Never, ever, ignore a call from a headhunter,” says Mr Poole.
“Even if a person is blissfully happy in their current job, that will not always continue. Maintaining good links with headhunters makes it easy to call them up when the need arises.”
Mr Poole adds that for many jobs “at the top end” of the industry, headhunters may want an introductory meeting with a candidate before revealing any roles for which they are recruiting.
“I always took calls from headhunters and was always happy to go and meet them.”
Sital Ruparelia, a careers consultant, adds: “Everyone should have a relationship with one or two good headhunters. You never know what’s around the corner, a market contraction, restructure, a takeover.
“You want to ensure you’ve relationships that can help you when you need to find an opportunity quickly.”
Even if asset management professionals do not have existing relationships with headhunters, there is no harm in speaking to them, says Mr Ruparelia.
“Keep an open mind. If nothing else, it’s a good chance for you to learn about the market, find an opportunity for a friend, or maybe find a really good recruiter who could help you recruit for your team,” he says.
Headhunters can also prove to be a useful barometer on a candidate’s performance and provide helpful feedback, says Mr Poole.
“There is typically more feedback on good and bad points arising from the selection process, so it can be very useful for refining a candidate’s technique for interviews,” he adds.
While being contacted by specialist recruitment firms can be a valuable way of advancing your career, Mr Poole advises some caution to those not familiar with their way of working.
“Remember who they are working for,” says Mr Poole.
“They get their fee from placing candidates with employers. Candidates are their currency.”
With this in mind, Mr Poole warns that “less scrupulous headhunters” may seek access to a candidate’s own contact book when getting in touch.
“In the good old days pre-social media, this would be quite low key, such as a ‘do you know anyone else who may be suitable for this role’ question,” says Mr Poole.
“Now, they can be a little more devious and ask candidates to connect via LinkedIn, gaining access to potentially hundreds of names.”
Mr Poole recommends ignoring any unsolicited invitations to
connect via LinkedIn unless it is from someone “you know well enough to trust them with your list of contacts”.
Candidates that have no experience being approached by headhunters are likely to be cautious, but asking the right questions can help determine whether it is worthwhile following up on the first call or email.
Mr Dewhirst says: “The best specialist headhunters know the industry well. I would recommend asking what their background is, which area they specialise in and what the market is looking like.”
Sarah Dudney, a career coach and former headhunter, agrees asking the right questions is key to gauging whether a role offered by a recruitment specialist is the right one.
“When a headhunter calls, do not just talk about compensation,” says Ms Dudney.
“That will say everything about you, and not all good. Show that you are connected and engaged and know what is going on in the short and medium term with the industry,” says Ms Dudney.
She suggests questions such as “which companies are doing innovative projects in my sector?” or “what hiring trends are you seeing currently in the market?” to show engagement and also help determine the quality of a particular headhunter.
Mr Ruparelia agrees that posing the right questions to recruitment specialists is key.
He suggests asking: “Who is the client they are representing? What’s the role? Why are they hiring and how long have they been looking for? Where are they in the process, what specifically are they looking for? Why does the recruiter think you’d be suitable?”

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Scottish nationalist energy claims dashed by Wood MacKenzie after it says that 15.3bn barrels of oil equivalent remain in the UK

Oil rig

Alex Salmond’s claim that an independent Scotland could expect £1.5 trillion of revenue from the North Sea’s remaining oil and gas reserves have been shot down in the final hours of the referendum campaign by one of Scotland’s most respected energy consultants.

Edinburgh-based Wood MacKenzie said Wednesday that a “low level of discovered reserves combined with the cost challenges facing operators mean that, notwithstanding the total level of reserves that can be produced over the life of the North Sea, future Scottish production is under pressure.”

In research considering the implications for the oil and gas industry should the Yes campaign win on Friday Wood MacKenzie said that in the whole of the UK just 15.3bn barrels of oil equivalent remain, of which 84pc could be claimed as Scottish.

The figure is about 10bn barrels lower than the estimated 24bn barrels of oil equivalent which Mr Salmond and the Yes campaign have based their projections. Wood MacKenzie’s analysis of the real state of Scotland hydrocarbons wealth comes after BP and Royal Dutch Shell lined up behind the influential voice of Sir Ian Wood to criticise Mr Salmond’s projections for the North Sea’s resources as being misleading.

In the event of a victory for the Yes campaign Wood MacKenzie warns: “A border for oil and gas activities would need to be negotiated. A prolonged dispute could cause uncertainty and negatively impact the investment plans of companies active in the disputed area.

Operational issues continue to impact UKCS production levels. Although production decline rates slowed in 2013 compared to the two previous years, they were still higher than expected. The factors contributing to this underperformance were unscheduled maintenance, project delays and poorer than expected recovery. If these issues persist, even the temporary recovery forecast to 2018 could be at risk.”

Government figures released last month showed that revenues from North Sea oil and gas have fallen significantly to £4.7bn in 2013-14, down from £6.1bn the previous year.

Danny Alexander, chief secretary to the Treasury has said that Scottish government has over-forecast oil and gas revenues by £5bn in the past two years. “Despite this, the Scottish government’s plans for independence rely on generating more than double the amount of North Sea tax forecast by the independent Office for Budget Responsibility,” said Mr Alexander.

George Soros

Manchester United

Legendary fund manager George Soros bought into the Red Devils via his Quantum group of fund on 9 August 2012, the day the club floated on the New York Stock Exchange.

Despite missing out on a place in this year’s Champions League, Manchester United’s share price has risen in recent months as deals for television rights and multiple commercial partnerships have secured a constant revenue stream for the club.

Not every fund manager is a fan however. Crispin Odey’s London-based Odey Asset Management took a short position against Man Utd in December 2013. Odey cited the Glazer family’s ownership of the club, rather than poor performances on the pitch, as the reason for the short.

Crispin Odey

Borussia Dortmund

But Odey (pictured) is not against backing all football teams. His firm holds German club Borussia Dortmund in three funds, making it one of the largest shareholders in the club.

The team’s share price rose in June after Germany won the World Cup with several Dortmund players in the squad.

However, the rise in share price was probably more down to a new 11-year sponsorship deal with chemical company Evonik rather than a general German love-in.

Erik Esselink

Ajax

Citywire AAA-rated manager Erik Esselink holds a 0.51% position in Dutch champions Ajax through his £586 million Invesco Continental European Small Cap fund.

Esselink believes that many investors have overlooked the club’s potential due to the illiquid nature of the holding.

He told Citywire that Ajax was a reliable investment because of the club’s commitment to developing and selling young footballers, and its continued success in the Dutch league.

While the club is champion of its domestic league and has another run in the Champions League this season, it is again a lucrative TV deal – Fox has the rights to the Eredivise, the top Dutch league, for the next 12 years – that has pushed up the share price.Nick TrainJuventus and CelticCitywire AA-manager Nick Train (pictured) has invested in more than one football club via his Lindsell Train Global Equity fund and the Finsbury Growth & Income investment trust.He has a 2.2% stake in Italian champions Juventus and a 7% stake in Scottish league winners Celtic.Juventus has been generally consistent over the last year, having reached a high point in October 2012, while the football team has continued to succeed on the field, winning several trophies.Earlier this month Train increased his stake in Celtic to 7%. The club was valued at £35million in 2011 when Train initially bought shares. Back then he told Citywire that this was a significant discount. He was proved to be right as Celtic was recently valued at £50 million.

 

Some of this is as a result of the industry changes brought about by the RDR, but a huge chunk of a firm’s overheads is also down to the FSCS levy.

With regulatory fees rising by more than 30 per cent for some firms, and the threat of yet a higher levy this year, there will be many who will be doubting their ability to survive in the industry.

The bottom line is that the levy is an indirect tax on the industry and the cost of regulation has become disproportionate to the aims and achievements of the regulator.

We know that there has been bad practice in the past. But what is happening now is that the miscreants have left the industry and those of us who are left are shouldering the cost of mistakes made by those who have already baled out.

The FCA may have achieved greater fairness for the client, but fairness for the IFA seems to have been thrown out in the process.

 

Aegon has moved to reassure advisers that they are still ‘central’ to the provider, after a consultant said the company was moving direct as advisers and brokers ‘weren’t adding value’.

The comments came from consultant Sam Roddick, who heads Deloitte Digital, which worked with Aegon to develop its direct-to-consumer proposition Retiready.

In an interview with marketing website CMO.com, Roddick credited Aegon marketing officer David Macmillan for the life company’s decision to target clients directly rather than just through advisers and brokers.

Roddick said Macmillan had realised the commission ban had ‘disintermediated’ advisers and brokers, meaning that providers needed to build their own relationships with clients.

Roddick told CMO: ‘David realised that the industry was changing, the brokers were being disintermediated because they weren’t adding value and because legislation was saying they couldn’t take commission from the organisations whose pensions they sold.

‘Most consumers are unwilling to pay for advice, so previously brokers and pension advisers were paid around the back by the pension provider. Legislation [the retail distribution review] stripped that away.’

He added: ‘David realised that Aegon really needed to have a direct relationship with the consumer.’

New Model Adviser® first revealed in June that Aegon had written to advised clients asking for confirmation of adviser contact, in an effort to cut off trail commission for advisers that had not been in touch with clients.

In July the provider U-turned on this strategy and said it would only cut trail where clients explicitly told the provider they were no longer receiving advice.

An Aegon spokesman said that Roddick’s comments did not accurately reflect the provider’s or Macmillan’s views.

‘Advisers are central to our business and professional advice is a valuable service for those with access to it. The industry is changing and as a company we need to respond to the needs of customers and advisers,’ he said.

‘Retiready is designed for customers who feel they don’t need, or can’t afford financial advice and who want simple products and like the accessibility of a digital service. We want to work with advisers on getting the UK ready for retirement and believe Retiready can be complementary to this.’

He added: ‘Retiready already prompts customers at certain decision points to consider whether they may benefit from financial advice.

Royal London’s first half profits have been hit by the introduction of charge capping and other regulatory changes on defined contribution pension schemes.

The mutual life, pensions and investment provider’s European embedded value profit before tax was up 8 per cent year on year for the six months ending 30 June 2014 at £110m, before taking into account ‘exceptional items’.

One such exceptional item was the DC charge cap, with Royal London stating it was “adversely impacted” by a £61m “assumption change” from this, meaning it ended the first six months down 45 per cent at £139m.

In March, the Department for Work and Pensions revealed that workplace pensions will be subject to a management charging cap of 0.75 per cent from April 2015.

Earlier this year, Aegon UK warned the charge cap imposed by the coalition government posed a real threat as it estimates a hit of £20m to £25m a year, equating to more than half of the profits for this year at its current run rate.

Phil Loney, group chief executive at Royal London, said the first signs were showing that the government’s charge capping and other reforms will have precisely the opposite consequence to what is intended.

He said: “We believe that this government intervention will only distort a market that was already moving in favour of lower charges for pension scheme members due to scale economies from auto-enrolment.

“Future governments should focus on increasing the onus on employers to regularly shop around the market for the best deal on offer rather than focus on centrally fixing market prices, which acts to reduce competition.

“Pensions minister Steve Webb told parliament that pensions companies’ total revenue would be reduced by £200m over a 10-year period.

“The provisions for the pension charge cap that we have seen from pension providers during this reporting period suggests that this is a gross underestimate. We estimate that the total reduction in long term insurer income may well reach £1bn.

“This seems to me to be an unacceptable margin for error in the government’s understanding of the impact of its actions and the size of the impact is driving many insurers to introduce employer fee arrangements to mitigate against the impact of further reductions in the price cap.

“I hope that present and future governments will think carefully about these consequences before lowering the cap further, not least because the impact of price capping is likely to fall increasingly on the hard pressed SME sector.”

The firm’s protection business was also down 33 per cent at £161m.

However, the group said there was not a like for like comparison as last year’s business was buoyed by the spike in demand created by the removal of gender-specific pricing. Royal London stated that it continues to invest in service enhancements and product improvements to increase future protection market share.

On the upside, individual pensions grew 15 per cent to £609m and drawdown was up 19 per cent to £358m.

Mr Loney stated the firm was a market leader in the external linked free standing drawdown market, with a 72 per cent share.

He said: “The freedoms announced in March’s Budget are likely to make drawdown in all its forms a far more popular method of generating an income in retirement than it is currently, which will put us in a particularly strong position.”

 

 

New pensions access regime allows savers to avoid death tax

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New pensions access regime allows savers to avoid death tax

Incoming pensions tax rules could allow savers to avoid paying a death tax charge on their unused savings, according to experts.

The draft Taxation of Pensions Bill, which will enshrine in law the pension freedoms announced in this year’s Budget, introduced a new way of taking pensions savings which will sit alongside annuities and drawdown.

The so-called unsecured fund pension lump sum (UFPLS) will allow people to draw a lump sum from their pension without having to crystallise the whole pension pot. Of the lump sum they withdraw 25% will be a tax free lump sum and 75% taxed at the individual’s marginal rate. However, the annual allowance for anyone taking a UFPLS will be reduced from £40,000 to £10,000.

Currently there is a charge on death of 55% on crystallised funds, which those using UFPLS would avoid, though the level of the death charge is under review and changes will be announced in this year’s Autumn Statement.

By entering drawdown (known as flexi-access drawdown under the new regime) the entire fund is crystallised but it is possible to take 25% of the entire fund as a tax free lump sum, and so long as no income is taken, those in flexi-access drawdown can keep their £40,000 annual allowance.

If savers take income then the annual allowance will be cut to £10,000 for those in flexi-access drawdown.

For some people it will be more advantageous to us a UFPLS than enter drawdown.

For a full breakdown of the new pensions tax regime, click here.

Adrian Walker (pictured), retirement planning manager at Old Mutual Wealth, said people with a short life expectancy might be better off with a UFPLS.

‘What you want to do with your pension may be different from me. I may drink and smoke and my life expectancy may not be as long so I might want to take the income out and leave as much as possible for the wife and kids. If that is the main priority then I will take income in the most tax efficient way [through UFPLS] and leave as much as possible without the government taxing the hell out of it,’ he said.

David Robbins, senior consultant at Towers Watson, agreed with Walker but highlighted that many would want to kept the £40,000 annual allowance.

‘From a death benefit point of view there would be advantages to it [UFPLS] but for someone expecting to stay in work keeping the £40,000 annual allowance will be important. If you have no personal allowance left and are a 40% tax payer then being able to make £40,000 tax free contributions would be important.’

Claire Trott, head of technical support at Talbot and Muir, said: ‘It all depends on your circumstances; those persons who want to protect their death benefits will want UFPLS, but if you have no children to pass the pension on to our have a spouse who you expect to transfer it to after death, because they will be able to take income without paying a death charge anyway, flexi-drawdown would be preferable.’

Paraplanners will survive rise of the robots

Paraplanners will survive rise of the robots

Recently I was told that the entire paraplanning process could be automated with the bare minimum of human interaction. I could not disagree more.

Paraplanning might seem ripe for automation; in a study scoring the probability jobs that will become automated from 0 to 1, the comparable paralegal role scored 0.94, one of the highest.

Last week, I popped into my local branch of a well-known high street bank to pay in some money. I was directed to a self-service machine. However, what at first seemed a quick and easy experience left me a little underwhelmed.

I want to be challenged over whether I have used my ISA allowance, informed about the latest savings rate, or reminded that my fixed rate mortgage is due to expire. I would want this to be by someone who truly knows what they are talking about.

Why should paraplanning be any different? Sure, software that can assist in the paraplanning process has it place. Perfect examples of this are critical yield and total expense ratio calculators. These can be used to provide factually correct results based on numerical objectives and inputs, but cannot provide the subsequent knowledge and experience-based steps, particularly when an anomaly rears it head.

Personal touch

However not all software is up to the job. My biggest bugbear is suitability report writing software. This is not paraplanning. It can be used to fill the gaps in providing the bare bones of a compliant report, but it will not translate the client or adviser objectives in a personalised way.

So long as paraplanners make the role about questioning assumptions, we should be immune from the rise of the robots.

James Eden is business development manager at The Timebank