May 2017 ISSUE 58

NEWS REVIEWS COMMENT ANALYSIS

For today’s discerning financial and investment professional

Apri l 2017

CONTENTS

5Editor's Welcome

6News

14Better business — Are you taking

your own advice?

22Modern cashflow modelling

is truly transformational

30The shifting sands of

pension tax policy

36Glory days?

42Career opportunities

12The eye of the tiger

18

Adviser Spotlight – Adam Carolan

26The risk of risk-profiling — part 2

32Five common myths about selling your financial planning business

38Slippery figures

CONTRIBUTORS

Brian Toraan Associate with investment managers JM Finn & Co.

Neil Martinhas been covering the global financial markets for over 20 years.

Richard Harveya distinguished independent PR and media consultant.

Michael WilsonEditor-in-Chiefeditor ifamagazine.com

Sue WhitbreadEditorsue.whitbread ifamagazine.com

Alex SullivanPublishing Directoralex.sull ivan ifamagazine.com

IFA Magazine is published by IFA Magazine Publications Ltd, The Tobacco Factory, Loft 3, Bristol BS3 1TF Tel: +44 (0) 1179 089686

© 2017. All rights reserved

‘IFA Magazine’ is a trademark of IFA Magazine Publications Limited. No part of this publication may be reproduced or stored in any printed or electronic retrieval system without prior permission. All material has been carefully checked for accuracy, but no responsibility can be accepted for inaccuracies. Wherever appropriate, independent research and where necessary legal advice should be sought before acting on any information contained in this publication.

IFA Magazine is for professional advisers only. Full details and eligibility at: www.ifamagazine.com

Brett DavidsonFP Advance

CAREER OPPORTUNITIES

1Source Insight as at 31 December 2016. 2Source: eVestment AUM as at end of September 2016.

The value of investments can fall. Investors may not get back the amount invested. For a full list of risks applicable to these funds, please refer to the Prospectus or other offering documents. Before subscribing, investors should read the most recent Prospectus and KIID for each fund in which they want to invest. Go to www.bnymellonim.com. Investments should not be regarded as short-term and should normally be held for at least fi ve years. These Funds are sub-funds of BNY Mellon Global Funds, plc, an open-ended investment company with variable capital (ICVC), with segregated liability between sub-funds. Incorporated with limited liability under the laws of Ireland and authorised by the Central Bank of Ireland as a UCITS Fund. The Management Company is BNY Mellon Global Management Limited (BNY MGM), approved and regulated by the Central Bank of Ireland. Registered address: 33 Sir John Rogerson’s Quay, Dublin 2, Ireland. These Funds are sub-funds of BNY Mellon Investment Funds, an open-ended investment company with variable capital (ICVC) with limited liability between sub-funds. Incorporated in England and Wales: registered number IC27. The Authorised Corporate Director (ACD) is BNY Mellon Fund Managers Limited (BNY MFM), incorporated in England and Wales: No. 1998251. Registered address: BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Authorised and regulated by the Financial Conduct Authority. Insight investment’s assets under management are represented by the value of cash securities and other economic exposure managed for clients. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and its subsidiaries. Issued in UK by BNY Mellon Investment Management EMEA Limited, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Authorised and regulated by the Financial Conduct Authority. AB00058-002. EXP 30 Aug 2017. T5290 02/17

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“Victorious warriors win first and then go to war,” says the ancient author of the Art of War. “Whereas defeated warriors go to war first and then seek to win.” What better way could there be of understanding the PM’s need to go into the Brexit negotiations with the impression that she’s got a 58 million strong army behind her, rather than just 52% of them?

There’s more. “If your enemy’s forces are united,” says the sage, “separate them. If sovereign and subject are in accord, put division between them. Attack where your enemy is unprepared. Appear where you are not expected.” Well, full marks to Mrs May for getting that bit right as well. Her shock announcement on the morning after Easter Monday was perfectly timed for maximum impact.

Now you see it, now you don’t

And yet the Prime Minister is taking an unusual gamble this time, because she’s shifting the very support base on which the Brexit argument rests. Last year’s largely non-party referendum allowed public opinion to divide without very much reference to party loyalties – and, of course, a large part of the Tory party itself opposed the Brexit initiative which Mrs May is now leading. So did the overwhelming majority of the business community. And most of London’s voters….

Mrs May’s genius in calling this election has been to turn round last year’s non-party political Brexit decision so that it now re-emerges as a solid victory for the Conservative Party. “Let your plans be dark and impenetrable as night,” says Sun Tzu, “and when you move, fall like a thunderbolt.” If it works, she can now go out to Brussels with a boast of more than 52% behind her decision. Brilliant.

Well, maybe. But the doubts and the hostility are still there. Many in the business community are publicly working busily on finding reasons to be cheerful about the coming battle, but nobody is exactly whistling with pleasure at the prospect.

Banks are preparing continental bolt-holes for the fairly probable contingency of losing their European passports. The CBI is still pleading for something more definite than the stomach-churning prospect of tipping off an export cliff on the morning after Brexit. Londoners and the young are still appalled at the prospect. And absolutely nobody has been impressed by the revelation that the government has never even tried to quantify the cost of a hard Brexit.

“Relax, nothing can go wrong...”

As of late April, pollsters were predicting a safe 100 seat Conservative majority in June, which would be a useful advance on the thin 17 seat lead the PM has at the moment. The media seem agreed that she has chosen a good moment to destroy Jeremy Corbyn, whose 1970s-style Labour Party leadership has brought the party into deep trouble. And UKIP would seem to be a spent force, having successfully discharged its only torpedo.

But a lot can still change in seven weeks. Consider the Lib Dems, who were wiped off the constituency map in 2015 but who still lurk just below the waterline in many parts of the south of England. Consider the PM’s arrogant-sounding refusal to engage in TV election debates. And then consider the numbers of Conservatives who are threatening not to vote. How many apples have to fall off the applecart to upset it? We can’t know.

Back to Sun Tzu: “Build your opponent a golden bridge to retreat across.” Nope, that isn’t on Mrs May’s agenda either. This isn’t over yet.

Michael Wilson, Editor in Chief IFA Magazine

Strategy, StrategyI t seems I might owe the Prime Minister an apology. In last month’s I FA Magazine I accused Theresa May of not always knowing how to choose her battles wisely, and of wasting time and energy on second-l ine strategies. Well , I take al l that back. The PM’s decision to call a surprise election on 8th June suggests that she has been reading up on her Sun Tzu.

I FAmagazine.com

May 2017

5

ED'S WELCOME

ACQUISITION AND SALES

OF IFA BUSINESSES

Retirement?

Time for a change?

There are countless reasons to dispose of an IFA business, just as there are countless reasons to get hold of one.

WE ARE A SPECIALIST F INANCIAL SALES , CONSULTANCY AND BROKERAGE BUSINESS .

Gunner & Co.’s mission is to work directly with you, whether you are looking to realise the capital in your business, or you are looking for growth through a merger or acquisition.

We consider every business to be unique, and therefore finding the right solution foryou starts with a thorough understanding of your business operations and your wish list . Only from here can we make valuable introductions which align to both party’s needs.

If you would like to discuss options to sell, exit or retire, or acquire IFA businesses, please get in touch for a confidential discussion.

louise.jeffreys@gunnerandco.com

gunnerandco.com

Tax nightmare at HMRC Getting it taped

With the new tax year only a few weeks into its stride, reports are coming in of severe difficulties being caused by the amended treatment of dividends and savings income during the 2016/17 tax year which has just ended. As a result, according to industry sources, many thousands of taxpayers in certain income brackets may end up being charged hundreds of pounds too much, and some are being asked by HMRC to submit paper returns instead until the Revenue gets its software sorted out.

What seems to have sent HMRC’s programmers into a digital loop is that the rules relating to the tax treatment

of savings and dividends have been changed three times in three years. In 2014, Chancellor George Osborne introduced a £5,000 tax free band for savers; then in 2015 he brought in a zero rate which differentiated between standard and higher-rate taxpayers – with a £1,000 zero rate for the first and £500 for the second. And then, of course, the second 2015 Budget brought a £5,000 tax free allowance on dividends. That, of course, was before the subsequent changes that Philip Hammond made in March.

The upshot of all this, as HMRC willingly admits, is that its programmers have been unable to keep up with the changes,

and at present – according to industry sources - taxpayers with non-savings income of between £11,000 and £16,000, but with total incomes of over £32,000, are not getting their zero bands allowed. Meanwhile, according to the Financial Times, those with non-dividend income of between £27,000 and £32,000 but with annual incomes of more than £145,000 are having their £5,000 dividend tax allowances calculated at an incorrect rate. HMRC is comforting itself with the thought that not very many people fall into this category. We’ll keep you posted.

Just as the Prime Minister settles down to grapple with the particularities of Article 50, the Financial Conduct Authority has published a group of “near final rules” on the implementation of the Markets in Financial Instruments Directive (MiFID) II. The FCA reminds firms impacted by the changes to the activities and

instruments covered by MiFID II that they should now apply for authorisation or for variations of permission, unless they are prepared to risk being unable to operate in the UK market after 3 January 2018, when MiFID II takes effect.

The various changes include changes to the trading of financial instruments including issues affecting trading venues, transparency of trading and algorithmic and high frequency trading. But of more relevance to advisors will be the update on the taping of telephone conversations by retail financial advisers.

According to the regulator, “having considered consultation feedback in the context of MiFID

requirements, the FCA agrees that the business model of many of these firms means that a full taping obligation [with regard to telephone conversations by retail financial adviser firms] may not always be appropriate.” And that “the FCA will allow retail financial advisers to comply with the ‘at least analogous’ requirement by either taping all relevant phone conversations, or else by taking a written note of those conversations.

The ‘near final’ rules will be finalised in June during a further policy statement. This will cover remaining issues which include conduct of business, perimeter guidance, and client asset protections.

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May 2017 May 2017

NEWSNEWS

The UK’s first ever international specialist wealth management service for the LGBT market was launched recently by Equality Wealth Management Ltd. and St James’s Place Wealth Management.

The Equality Wealth service was first launched and piloted in Hong Kong. It will now cover the UK and Ireland.

The launch of the Equality Wealth service is in response to an increasing need for specialist financial advice within the LGBT community. The service has partnered with financial advisers who understand the particular needs of the community with products and services that have been screened.

Structured as an Accreditation Programme for LGBT specialist financial advisers, Equality Wealth connects to advice and services by introducing specially trained St James’s Place Partner Advisers with expertise in a number of key areas including retirement planning and saving, insurance and wealth

protection. It plans to combine the financial planning resource of SJP with specialist knowledge of the issues facing the LGBT Community. Equality Wealth also acts a conduit to specialist knowledge and financial advice for the LGBT community on starting a family.

Research shows that when it comes to retirement, there is a potential LGBT retirement cost premium of more than 20%, as well as a significant lack of retirement planning. The research, gained from a survey which Equality Wealth recently commissioned via LGBT news outlet Gay Star News, showed that only around 20% of respondents felt they had planned adequately for retirement and more than a third saying they had not made any plans at all.

Paul Thompson, Chairman of Equality Wealth and Founder of LGBT Capital, the world’s first specialist investment management company focused on the LGBT sector said: “We think a specialist LGBT

Wealth management service in partnership with a major institution is a very important development and shows the significance of the LGBT market. Many people in the LGBT community do not have access to advisers who truly understand their needs and the LGBT life cycle can be very different. Important issues such as saving for retirement can be overlooked, and with a generally higher disposable income there is a real opportunity with the right advice for the LGBT Community to achieve their financial goals.

“Clearly, the LGBT consumer represents a significant opportunity for both spending and investment, but it is essential that, where Financial Advice is given, there is understanding of the individual’s specific issues, and in regions where LGBT individuals are generally more private about their lifestyle, it is even more important to have a trusted adviser with whom they feel comfortable discussing their situation and objectives. We believe that Equality Wealth provides this.”

Iain Rayner, Joint Chief Operating Officer of St James’s Place, said: “St. James’s Place is delighted that Equality Wealth has chosen to work with us on this initiative. Our corporate values embrace diversity and inclusion and we are keen to actively project these values by supporting all members of society in reaching their financial goals and having advice tailored to their needs.”

UK launch of first international specialist wealth management service for LGBT market

Financial Planners urged to get behind UK Financial Planning Week 2017

Financial Planning Week 2017, which commences 8 May, represents a national initiative organised by the Chartered Institute for Securities & Investment (CISI) to bring financial planning to the consumer forefront. It was started in 2008 by the Institute of Financial Planning, which ran the campaigns annually until the merger with the CISI in 2015. Many other countries such as the US, Canada, Australia and South Africa use Financial Planning Week campaigns to successfully attract consumer attention to the benefits of financial planning.

In the UK, the week brings together Certified Financial PlannerTM professionals, Accredited Financial Planning FirmsTM, schools and industry media in a week dedicated to helping improve the financial fitness of the British public.

CISI is encouraging all UK consumers to sign up for free financial planning sessions offered by financial planning professionals during the week.

The free one hour consultations, which are worth up to £500, are being offered by CFPTM professionals and other professional advisers throughout the UK. Consumers are being encouraged to book a session with a local financial planner via cisi.org/fpweek emailing fpweek@cisi.org or calling 020 7645 0708. However, the opportunity to take part in the campaign and to provide

free consultations extends to all financial planning firms in the UK. Individuals do not need to be CFP professionals in order to do so.

The CISI reports that with almost 50 financial planning firms already committed to taking part, the aim is to shine the spotlight on financial planning, and to help people to take appropriate steps to organise their money to achieve specific life goals. They have produced an infographic for consumers who intend taking advantage of the free financial planning surgeries. Entitled “five things to do before your free financial planning hour”, the infographic aims to help people to prepare properly. It highlights the need for them to pull together their financial details as well as their thoughts around financial and life goals, so they can make the best use of the hour they have with the financial planner.

“Financial planning is a relationship-based process, which aims to help everyone, no matter what their age or financial circumstances. It allows those with money to plan their spending and saving wisely, but also those without, to work with a qualified CFPTM or CISI professional who can support them in reaching their financial goals. Financial planners do not just work with wealthy individuals,” said Jacqueline Lockie, Deputy Head of Financial Planning at the CISI.

Financial planning firms will be offering:

• Free consultation surgeries, either in person, via skype or over the phone

• ‘Ask a Planner’ online sessions

• Talks to schools across the country about the merits of the financial planning profession

Ian Painter APFS FCSI CFPTM of Affinity Integrated Wealth Management said that throughout financial planning week: “We are here to support people with the big questions in life eg when can I afford to retire? Most consumers don’t take time to think about these or even know where to begin. Issues such as making sure the family are ok, that you can afford to do the things you want to and protect what you have.”

Martin Bamford, Managing Director at Informed Choice Ltd said: “We are pleased to help support Financial Planning Week again this year. The best way to share the benefits of financial planning is to talk about the work we are doing with clients on a daily basis, changing lives and helping achieve long-held goals. Throughout the week commencing 8th May we’ll be writing, podcasting and making videos about various aspects of financial planning, which we hope will be shared with a wide audience and encourage readers, listeners and viewers to take positive action.”

Firms wishing to take part in Financial Planning Week 2017 should contact Cisi.org/fpw. You can also follow the action on Twitter, using the hashtag #FPWUK and #lifesbetter. The CISI’s Wayfinder facebook page will also be showing details of what is going on.

May 2017

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May 2017

NEWSNEWS

Hedge trimming

Hedge funds have been disappointing their larger investors during the last few years, according to new research from Hedge Fund Research, which says that the funds delivered an average return of just 5.6% in 2016 – far below the 11% return from the S&P 500 [or the 14.5% from the Footsie].

The FT reports that investors pulled down a net outflow of $70 billion from hedge funds worldwide last year – the biggest exit since 2009, when $131 billion was withdrawn. Yet, says JP Morgan, almost nine out of ten larger investors still say that they plan to increase or maintain their hedge fund exposure in 2017. Most say that they’re looking to reduce their correlation with markets, to to achieve more protection against volatility.

Prestwood Group, providers of cash flow modelling software Truth, is joining forces with Model Office (MO), a regulatory technical platform, to offer free events around the country for planners and business owners who want to take their business to the next level. The focus of the events will be on driving profits and making the advice proposition bomb proof.

The events are open to all planners, paraplanners and wealth managers, regardless of whether they use Prestwood software.

Prestwood Director Julie Lord (pictured) said: “Especially for those working alone, it is hard to find support that doesn’t cost an exorbitant amount and actually delivers more than just ‘marketing-speak’.

“These events are designed to help planners increase profitability and introduce firms to a way of building a stronger proposition: one that is rigorous, always compliant, and for those thinking of exit – ways to reduce time and cost for due diligence processes.”

Prestwood Software offers complete end-to-end solutions for financial planners and is one of the UK’s leading tools in the lifestyle linked sector.

MO’s platform provides firms with a snapshot of current business performance across firms’ systems, client proposition and operations. It produces a template to help firms implement a more streamlined, seamless, compliant and profitable strategy.

Managing Director of Engage Insight Chris Davies, who developed MO over five years, added: “Unlike the FCA, MO adopts a prescriptive approach to business development using gamification. This means you can understand how well you are performing and what needs to be done to improve scores to ensure on-going compliance and competitive advantage.”

All events are 10-1pm with coffee and lunch for those who are able to stay longer:

• 26 May Manchester: Macdonald Hotel, London Rd, Manchester M1 2PG;

• 30 June Birmingham: Novotel, 70 Broad St B1 2HT;

• 21 July London: venue to be confirmed.

To reserve a free place please email sandra@prestwood-group.co.uk, or call the Prestwood team on 01384 273736.

One moment Russia is an important ally of the United States, headed by “a nice guy who says nice things about me”, and the next moment it’s a kingpin of the axis of evil in Syria, led by Satan himself. One moment it’s all about abolishing Obamacare, and the next it’s about backing off from the self-same aborted project with the minimum loss of face. (I mean, c’mon, who’d have thought it could be so complicated to run a welfare system?)

One week NATO is obsolete, and the next it’s absolute. One week we’re promising to create lost jobs in the rustbelt, and the next - well, maybe next year or the year after that, I don’t know, these things cost money. This week we’re threatening those 35% tariffs against Mexican and Chinese goods, but maybe we haven’t decided yet how to break it to all the lower-income Americans who’ll still be forced to pay for those goods when they’re more expensive. It’s a shifting kind of truth which ultimately destabilises everybody.

The end of the Trump trade?

There are those, of course, who insist that, dealmaker that he is, the President is simply testing the ground when he says he wants something, or that he likes/hates somebody. He doesn’t necessarily believe it. It’s what a hard-bargaining dealmaker would call a price discovery process.

And that, to be frank, is less than what the business world requires from the world’s most powerful policymaker. Nor do I think anyone will find it hard to understand why it baffles America’s diplomatic partners. How exactly do you plan around all these unknowable contingencies?

And so to the Trump Trade, the burst of stock market optimism that’s been in evidence since last November’s election. The 18% rise in the S&P between late October 2016 and early March has been fuelled by confidence that Mr Trump can indeed Make America Great Again (not that its 160% growth under Obama’s presidency was exactly a slouch performance, but why let the facts get in the way of a good historical rant?). And all the while, America’s self-fulfilling prophesy was sucking in foreign capital and boosting the dollar.

Ambitious economic underpinnings

Well, we can’t deny that President Trump’s plan for a vast expansion of job-creating debt, coupled with hefty tax cuts, does sound good to the financial markets. The trillion-dollar infrastructure plan has the undoubted ability to create manufacturing jobs. The promised straightening out of the financial markets ought to improve America’s competitiveness. And just think of all those wonderful jobs that will be created for one of the

world’s youngest workforces. (Oh yes, did we mention that?)

So what was behind that 500 point fall in the S&P since late February? Why did the Dow Jones industrial index have its longest losing streak since 1978 during March? Why did the FTSE-100 spend February, March and early April tracking sideways?

Well, we might disagree, but I’m looking at Trump’s impossibly delayed plans for budget reform, whose outline discussions are now due in – ooh, let’s see – August, maybe October. Or later.

I’m looking at the cyclically adjusted p/e ratio on the S&P, which, at the time of writing is nudging a heady 29 even though the trailing twelve months ratio is barely 22. And I’m thinking, the market has leveraged itself quite a long way in anticipation of things that just keep on getting postponed.

The senior investment houses were hanging in there at the time of writing, but lower down the food chain the commentators were shuffling their feet. “The end of Trump trade tranquillity” was how the Wall Street Journal summed up the late March action. Will we hear more of the same? Abolishing uncertainty is part of the President’s job.

Prestwood and Model Office combine to offer business support for financial planners

This year, next year, some time, never?I f there’s one thing that the last 90 days have taught us, it ’s that nothing lasts forever where President Donald J Trump is concerned. Michael Wilson tr ies to work out what it might mean for the US markets.

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May 2017

MARKET ANALYSISNEWS

mired in political scandal. Nigeria, which also didn’t feature in the Bloomberg top twenty emerging nations for investment, has also suffered from a lower oil price, while political unrest and internal strife has also played its part.

The Global Emerging Markets sector of the Investment Association’s list of investment funds is large and varied. I look at it regularly and marvel at the changing fortunes of the managers that feature. It demonstrates how difficult it can be to cope with as wide and diverse a constituency as what we term the emerging world, though there are funds that do manage to avoid the very wide swings that some suffer.

Yet the underlying themes remain intact. Many – not all – of these lesser developed countries have large populations which enjoy a strong work ethic. Of even more importance, a lot of these countries’ peoples are young and the demographic pressures we face in the developed world have yet to impact. While the risks associated with investing in this sector should not be ignored, I wonder if they are any greater than, say, backing the US market with its expensive share valuations and an untried president. I know where at least some of my money is going.

Nearly 30 years ago I was involved with the launch of an index tracking vehicle, aimed at replicating the returns of seven of the smaller Asian markets. It was called the Tiger Tracker and sought to cash in on a growing appetite for passive funds and for the exciting markets of the emerging world, as it had become known. Prior to the 1980s, Emerging Markets were very much the province of a few specialist fund managers, like Templeton who’s Mark Mobius strode these markets like a colossus.

It wasn’t the most successful of funds. For a start, replicating the indices of seven small, often illiquid, markets was never going to be easy. Nor was it. A generous tracking error was built in and was needed. Perhaps it was too complex an instrument for the average investor to understand at the time, though heaven knows, investment vehicles these days include some very sophisticated techniques that we could have only dreamt about back in the mid 1980s.

However, it is worth bearing in mind that there is more to Emerging Markets than just the aspirant nations of the Far East. A few years ago Bloomberg published a survey into these markets, grading them according to GDP growth, inflation, government debt relative to GDP and ease of doing business.

Interestingly, only six of the top twenty were Asian countries, though for some reason India did not feature in this particular table. True, the top three places were taken by Asian nations, but South and Central America, Africa and Europe all contributed to the mix of markets worth watching.

BRICs and MINTs

As I recall, it was Jim, now Lord, O’Neill who first coined the phrase BRIC – Brazil, Russia, India and China. His contention was that these were the major players in a world where economic power was migrating from the traditional developed countries and that investment in them needed to be taken seriously. Subsequently, the term MINT came into fashion as the next tier of Emerging Markets. Mexico, Indonesia, Nigeria and

Turkey all shared with their BRIC counterparts large, relatively poor, populations, even if they lagged the giants of China and India significantly in numbers. Only three of the eight countries in these two groups are in Asia.

In the three years since Bloomberg published their table, a lot of water has flowed under the Emerging Markets’ bridge. With China still dominating sentiment in this sector to a significant extent, it is little wonder that fortunes have fluctuated as they have. Moreover, a widely promoted belief that the future for investors lay in the developing world led to extravagant valuation levels being attained in many areas. I well recall chairing a conference less than a decade ago where a respected fund manager opined that investors need look nowhere else than Emerging Markets for consistent long term growth.

Different dynamics

He was proved wrong, of course, but that is not to say these markets should be written off. The varying fortunes of some of these countries over recent years serve to underscore how very different the dynamics can be. Russia’s fall from grace owes much to the economic sanctions put in place following the annexation of Crimea, but even more to the fall in the oil price. Brazil has seen its economy shrink massively and has been

Prior to the 1980s, Emerging Markets were very much

the province of a few specialist fund

managers, like Templeton whose

Mark Mobius strode these markets like

a colossus

The eye of the tigerEmerging Market funds were amongst the outperformers in 2016, but what does the future look l ike for investment in this dynamic asset class? Brian Tora takes a look at the issues

May 2017

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May 2017

EMERGING MARKETSEMERGING MARKETS

Better business — Are you taking your own advice?When you are leading a very busy work l i fe, it is often diff icult to f it in everything you want to do. Brett Davidson of FP Advance turns tradit ional advice on its head as he suggests that by putting the fun in f i rst you wil l see your work/l ife balance transformed

Play before work

We all know that you should do the work first and play later. Right? Well, I’m going to suggest you do exactly the opposite. As an adviser, you spend a large portion of time talking to clients about life not being a dress rehearsal. Are you listening to your own advice? The time to do all the things you want to do is now.

Most of us have friends or family who have suffered from a dramatic change in their state of health. These events always come as a shock and remind all of us to make sure we live our lives as fully as possible, while we are able. No one is immune from the randomness of serious illness.

A different approach

When you plan your weeks, your months, and your year, try putting all the fun stuff in first:

• Your visits to the gym

• Any days off or holidays

• Time with the family and the kids

• A long lunch with your spouse or partner

• Going surfing or skiing, or anything else that you love

Then you can use whatever’s left for work time. I know that might sound radical; it’s meant to. It seems counter intuitive. So, why does it work?

As Wikipedia tells us, Parkinson's law is the adage that ‘work expands so as to fill the time available for its completion’, and is also the title of a book which made it well-known. This concept was originally proposed by twentieth-century British scholar, C. Northcote Parkinson. On this basis it might make sense to limit the hours you spend at work, lest they overtake your life.

I’m not being facetious here. Most of us originally had dreams of working hard so that we could achieve some level of financial security and then, enjoy life. However, after you’ve been at it for 20-plus years, it’s really easy to forget that, and to believe that the daily grind is now your life.

Consider this example

Imagine you are informed that you have some form of dreaded disease, and your Doctor tells you that if you don’t halve your working hours you’ll die in the near future.

In that situation it’s a pretty easy decision to halve your working hours. So now you’re working about 20 hours or so per week.

How much of your current income do you think you might earn?

The time to do all the things you want

to do is now

Most of us originally had dreams of working hard so that we could achieve

some level of financial security and then enjoy life. However, after you’ve been

at it for 20-plus years, it’s really easy to forget that, and to believe that the daily

grind is now your life

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BETTER BUSINESSBETTER BUSINESS

Brett is the Founder of FP Advance, the boutique consulting firm that helps financial planning professionals advise better and live better.

He is recognised as one of the leading consultants to financial advisers in the UK. Professional Adviser magazine has rated him one of the Top 50 Most Influential people in UK financial services on three occasions.

You can follow Brett online and via social media:

Twitter: @brettdavidson

Facebook: www.facebook.com/FPAdvanceLtd

LinkedIn: http://www.linkedin.com/in/davidsonbrett

Website: www.fpadvance.com

It’s not going to be 50% is it. It’s more likely to be 80%, or even 90%.

That’s got to make you think; “What the heck am I doing with the other 50% of my time?”

How much less time at work do you think you could do? If you had a great team around you I reckon it would be an awful lot less. However, even without that in place you could make changes that would give you some time back without dramatically reducing your income.

It’s easier than you think

Why not start by shaving off just one hour per day? Or two hours? Or taking Fridays off? Any of these ideas would provide you with some more quality of life.

What’s the worst that can happen? You undoubtedly will try a few ways that it doesn't work, but any of the challenges that arise simply give you a steer on what to work on next to achieve your goal.

What are the payoffs?

Benefit 1: It’s the fun stuff that fills you up. Then you’ve

got something to give; to your clients, your business, your team, your family and friends.

My personal experience of doing the fun things first is that you are better at your day job. You have refilled the creative well by taking some time to do things that you love. This has a positive effect on all areas of your life.

Benefit 2: Less time for work forces you to prioritise. If you allow 10 hours per day for work, you’ll fill it. If you allow 3 hours per day for work, you’ll only do the stuff that matters.

If you’re not so good at prioritisation and delegation then shave a lot more time off your work day. It will force you to choose.

Benefit 3: This is a powerful way to improve your delegation skills. I speak with clients all the time about ‘only doing what only you can do’. Yet they still struggle to let go of the inconsequential and focus on the high-value stuff.

Go for it

A radical change of approach works far better when you’re trying to shake up the way you’ve always done things. This is why I recommend the fun-first method. Small incremental changes often mean you just end up reverting to what you’ve always done.

Let’s say you get it wrong and you go just a little bit too far with the play; meaning the work doesn’t get done. What do you do? You adjust.

You can always scale the fun back a bit to find the right balance. However, doing it the other way around, where you try to scale back your work hours, is much harder as you might already know from experience.

It takes courage to do this. Don’t let fear keep you stuck. Try this for three weeks and see how it makes you feel.

My personal experience of doing the fun things first is that you are better

at your day job.

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BETTER BUSINESS

Career OpportunitiesIndependent Financial Adviser

Bristol or Bath (5 min walk from Bristol Parkway train station, 10 min drive from M4 J19 & M5 J17)

Competitive fee sharing arrangement

THE COURT ANNEX, THE GREEN, STOKE GIFFORD, BRISTOL, BS34 8PDGLAMIS-IFA.CO.UK

Position:

Location:

Salary:

We are a directly authorised, family run IFA firm based just north of Bristol, currently two advisers and an administrator (trainee Paraplanner). We are looking for an experienced adviser with an existing book of business to join our growing firm. As well as a strong technical understanding of financial planning and a minimum of level 4 qualification, we are looking for someone who will operate with honesty and integrity as well as having good interpersonal skills.

We can offer:

• Competitive fee sharing arrangement

• Admin/paraplanning support

• Dedicated desk space and meeting room availability

• Compliance and research support

• Leads provided

• Parking Space

We can work with an adviser on an employed or self employed basis.

For more information please contact Charles Chami on charles@glamis-ifa.co.uk

So, rather than quitting, I told myself that for the rest of my career, I would try to improve the profession bit by bit and lead with actions rather than words. I have been pretty disappointed in the state that I have found financial advice and planning today. Along with Rohan Sivajoti, my NextGen co-founder, our “why” is that we want to leave the profession in a better state than we found it. Our vision is that our peers are extremely professional, well-learned and great financial planners.

So how do you go about doing all of this? What actually happens? How do people get involved?

At first, we just set up roundtables, hosted podcasts (with relevant experts in their different fields all relevant to the needs of planners and paraplanners). We also setup a Facebook Group for like-minded people to discuss ideas and best practice. It was all a bit of a hobby borne out of frustration to be honest, as there wasn’t much support for the next generation of professionals coming through.

Earlier this year, we saw real demand emerging so we decided to launch some areas where we saw there was a clear need for. Firstly, we introduced a foundation training programme for aspiring or younger planners. I am pleased to say that we have

had over 90 people enrolled in the first half of this year, in an initiative partnering with PFS board member Adam Owen, who is someone we have admired for some time.

We also set up a membership for under £10pm (basically to cover the cost of the website) and we host webinars, virtual and physical roundtables and share content and discounts. All our content at NextGen is built specifically for preparing your business for the next 10-15 years.

Finally we are delighted to say that in November we will be welcoming around 150 next generation planners to our first conference in Manchester. We have a really interesting line-up and agenda which includes the likes of Rory Percival, Mark Polson and Jason Butler - all of whom have made fantastic

I told myself that for the rest of my career, I would try to improve the profession bit

by bit and lead with actions rather than words

Adviser Spotlight – Adam CarolanIn this popular monthly feature, I FA Magazine talks to leading advisers about what is happening in their careers. This month, Sue Whitbread talks to Adam Carolan about his passion for f inancial planning and how he is supporting the development of the profession through NextGen Planners, an organisation aimed at bui lding and supporting the next generation of f inancial planners

What was it that inspired you to follow a career in financial planning?

From the age of 16, I had always been interested in the idea of money. My father gave me some money to invest into shares back in 1999 and the first thing I did was pick stocks from the Daily Mail,. I spent hours researching stocks and to cut a long story short I picked a few dogs but some that benefitted from the dotcom boom and we were lucky enough to sell those before the bust came. We ended up with a profit, but it was a useful early lesson in money and finance. That things go down as well as up!

From there, I went to university and studied finance. The natural career progression for my course was investment banking. In all honesty, I wasn’t cut out for the environment in London doing this so I moved back home, where I got a job at Aegon in a Sales Support role. This gave me my first

experience with IFAs and financial advisers. I soon jumped over the fence to find two good firms that supported bringing on younger trainees. From there I followed the natural career progression from trainee to paraplanner into finally becoming a financial planner.

How did all that lead you to want to set up NextGen planners? What was the idea behind it all? Can you talk us through what the organisation is about –your “why” if you like. Also, can you share with us your longer term aims for the group too?

My career was pretty linear to be honest, but there was one moment that really shook my belief in financial advice. Around 4 years ago we found out when we looked through the paperwork, that my late father’s estate (he passed when he was 53) was missing a considerable amount of money.

Looking through the details, we saw that there were numerous points of financial advice which eventually amounted to a loss of nearly £200,000. We are still in battles today with various ombudsmen and well-known pension companies. In all honesty, this nearly made me quit financial advice as a career. My overriding belief is that in the past, a large chunk of advisers had looked at people’s money as a sale rather than their livelihoods. This still angers me today when I see it happen.

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contributions to the development of our profession and have plenty of experience and ideas to share.

How many people are involved with NextGen now? It must take up a lot of your time?

We have numerous people helping us as they believe in supporting the development of the next generation of financial planners. To be honest, the whole business is built on efficiency and technology which is what financial planners should be thinking about. We purposefully made it a commercial enterprise so that we could control the message at all times rather than being dictated to. As we see it, when you make profit and have the right beliefs, that is when the fun really starts to happen.

What has NextGen got planned for this year?

Aside from our conference, we are still trying to decide! We have had numerous parties contact us to see if they can help and maybe get involved but we are being quite selective in who we work with. For us, it is about our community, making them feel welcome and giving them help to build their careers. I feel that our sector has completely glossed over the needs of future generations. We thought that now is the time to force the issues with the huge shortage of talent coming into the profession of financial planning. This needs to change. We didn’t think our organisation would have grown this quickly already, although as a fairly new company, a year is a long time and anything could happen,

With NextGen planners having just completed its first year of life, what have been the biggest successes to date?

That rather depends on what success measures you use. Success for me would be a new planner having developed the skills to be able to offer clients a great service or top-end financial planning. I don’t get to see that really, but that is why we set up NextGen. I want to be able to say that I am a financial planner with confidence in a few years, knowing that my fellow NextGen Planners are doing their bit with clients every day and taking our job seriously as we effectively handle people’s livelihoods.

I regularly get feedback from fellow NextGen members but when we start to get noticed by the public as a new generation of financial planners, that is when I will think it has been a success.

What are the main challenges you face – and how are you working to overcome them?

With any new initiative, you get the critics. In fact, from what I have seen, financial advice has suffered from infighting and negativity for years. Our challenge is to ignore the noise and have confidence and belief in our work. We need to communicate well as a community and all support each other.

I don’t look at other planners as competition. I have many good friends who are also financial planners and I would refer the right client to them in a heartbeat. To me, that is what professionalism is all about.

What are the criteria for people to get involved with NextGen? Are there age limitations or any relating to job roles?

No, this has been a misconception really. We are looking for those individuals who are willing to learn every day to be a better planner. We don’t want those who think they know all the answers because we can’t help them. If you have the mindset that you ADAM CAROLAN

Adam is a Director and Chartered Financial Planner at Xentum in Cheshire. As a day job, he carries out financial planning with successful and emerging talent in the business world, often in the digital and creative sectors. He also co-founded NextGen Planners early in 2016, as a way to promote professionalism and talent within the financial planning profession.Follow Adam and NextGen Planners on Twitter@adam_xentum @nxtgenplannersor visit www.nextgenplanners.co.uk

are going to be in the sector for many years to come and you understand that the challenges we will face will be very different to those over the past 10-15 years, then NextGen is for you.

How important is the use of social media for the growth and development of NextGen? Can you share how you use social media to gain support, interest and get the word out there? What works best for you?

I met Rohan, my fellow co-founder of NextGen, on Twitter talking about a band we both like, so you can’t underestimate the power of communications on social media. We also got out there, spoke to

planners, asked for feedback and produced a podcast with valuable insight from experts. NextGen is primarily focused on helping financial planners be better at what they do and without that audience of keen people willing to engage and learn, we don’t exist. Facebook and Twitter have been great tools for us, but the help we have had from supporters and members has been the real momentum for NextGen.

What do you enjoy doing outside of work and professional commitments?

I am a pretty simple person and spend nearly all my time with my family and friends. You can usually find me on a Sunday morning racing down a slide with my two year old daughter.

We are looking for those individuals who are willing to learn every day to be

a better planner. We don’t want those who think they

know all the answers

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Modern cashflow modelling is truly transformationalEngaging cl ients effectively in the financial planning process is essential for business success, says Jon Rolfe , founding partner, Epoch Wealth Management, a f inancial planning business based in Bath

For the old-school, transaction-based financial adviser armed with little more than a kit bag of sales ideas and a good company song, the client such as the high earner who worries about breaching the lifetime allowance, presents something of a headache. So too do those attracted by the death benefits available from defined benefits transfers, and those wondering whether an IHT-driven gift might one day compromise their ability to access long term care. Clients who are burdened with a combination of these problems can bring a traditional, product-led adviser out in a cold sweat.

But for the skilled adviser who has embraced the full power of cashflow modelling, and financial planning, these sorts of challenges can be approached with relish not fear. No adviser wants to go into battle not knowing the outcome. Cashflow models may not be perfect, but if used properly, they give the adviser the comfort of knowing that they will provide the best possible answers to the most complex questions that clients can ask.

Modern cashflow modelling software can be transformational

for every stage of an adviser’s business, from face-to-face client meetings right through to the back office. Effective use of cashflow modelling software can help us to identify more “need areas” for existing clients, to increase client engagement, help

us to deliver less risky advice, as well as demonstrating to the client just how much value the advice process can deliver for them in helping them to achieve their goals in life.

Traditional advice model under threat

I believe the more traditional product-led way of delivering

financial advice to clients is under pressure from two sides. At the transactional end of the spectrum, robo-advice and guided solutions are developing fast and this is challenging an increasingly web-friendly and price-conscious customer base. At the other end of the spectrum, Chartered and Certified financial planners are giving all-encompassing, expert advice at overall prices which are often lower than those of the traditional advisers.

Added to this, taking 1% of a client’s return is hard to justify in a ‘lower for longer’ investment environment, where long term annualised returns for investors with a balanced risk profile are usually expected to be nearer 4 per cent than 6 or 7 per cent. Value has to be demonstrated clearly through the provision of a sound planning service.

Advisers in this ‘middle ground’ face the prospect of either being consumed by the robo-advice tide or having to upskill in order to appeal to more sophisticated clients. Either way, their business models must change.

The majority of advisers know that a cashflow modelling approach should be fundamental

to the upskilling process. However, a lack of understanding of what transitioning to this structure will actually mean for them, their clients and their businesses could hold them back. Many believe that cashflow modelling is simply about showing a client whether or not they are going to be okay in the future. However, the reality is that this health-check is just one facet of what it can do for advisers and their clients.

Anyone considering making the switch needs to understand the three pillars of cashflow modelling which I will address here.

Pillar 1

This first pillar is the most obvious and the one I have already touched upon – it reveals a client’s long-term financial future to them, often for the first time. With the client details accurately inputted, most models will allow clients to understand, for instance, when they can afford to retire, or what the likely impact of taking a course of action will be. In this way, the cashflow planning model is an educational tool which provokes discussion and debate. It shows the client the likely impact on them of altering core assumptions in different lifestyle scenarios. It empowers clients to make what can be life-changing decisions with some confidence. For once, they’re talking with their adviser about the big picture. About how their money influences their lives and how

they would like to live them, rather than technical details such as the minutiae of investment management or pension contributions.

It is beyond this stage that many basic cashflow modelling tools reach their limitations.

Pillar 2

The second pillar focuses on the use of the cashflow model as a critical tool when constructing client advice, and is particularly useful when

undertaking more complex planning scenarios. Ask advisers who have used a cashflow model for a period and they will tell you that, on many occasions, they have had their pre-conceptions challenged and proven wrong by the technology.

Using cashflow modelling to stress-test advice is especially important when giving advice on a potentially irrevocable action which could have a

Cashflow models may not be perfect, but if used properly, they give the adviser the comfort of knowing

that they will provide the best possible

answers to the most complex questions that clients can ask

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understand. Whilst the advice still needs to be sense-checked and documented, this process will avoid risky, educated-guesses and the hours spent on self-made spreadsheets.

Sensible advisers understand that their advice could return to bite them in years to come. These second and third pillars help ensure the correct advice is given and that the client embraces the advice given with their eyes open. Clearly this minimises business risk.

Answering the critics

Critics of cashflow modelling will argue that many clients have no real idea what they will be doing next week let alone in 20 years’ time. But, surely, basing your planning on something is better than nothing?

Critics also point to the issue of non-linear returns and sequencing risk - a particularly significant issue for drawdown investors. They are right to highlight this, however, the limitation can be avoided if the modelling is expertly used and the adviser exercises skill in interpreting the results to factor in these variations. This is essentially tackling the FCA’s favorite topic of assessing a clients’ capacity for loss.

As well as dramatically enhancing your client proposition, fully embracing cashflow modelling is great for generating referrals, particularly from professional introducers. For lawyers and accountants dealing with big lump-sum settlements such as divorce, personal injury claims or corporate finance restructures,

it is a lot easier to say to their clients "this adviser is going to map out your financial future” than “they’re going to talk to you about where to put all your money”.

We are at a tipping point. Many of you will, I know, already have integrated this process into your business and will be enjoying the many benefits it brings. However, as figure 1 shows, lots of advisers know they need to adopt cashflow modelling, but, as with wraps/platforms over a decade ago, they can be nervous of commitment and of backing the wrong horse. If this describes you – it is time for action. To get started, all it means is researching the market, testing what is out there and finding the right solution for your business. It could be the best business decision you ever make.

profound impact on someone’s long term financial security. Classic examples would be the decisions which need to be taken in retirement or in IHT planning. Being able to create the “disaster scenarios” and see that the client’s primary objectives are still not compromised gives adviser and client conviction that the right decisions are being made. I don’t understand how I ever worked without cashflow modelling tools at my disposal. It is no wonder that a former FCA technical specialist suggested at a recent conference that cashflow modelling is likely to become a prerequisite for advisers wanting to arrange DB pension transfers for clients.

Pillar 3

The third pillar of the process ties together the first two. It involves showing the client how the issues raised actually translate into action. Engaging clients in agreeing the inputs to the cashflow process reduces any inertia they may have when it comes to moving forward on the outputs. It is all based on information and details that they have agreed up front. What’s more, giving a monetary value to an amount that could be saved or made is a compelling call-to-action. For example, advising a client with a non-earning spouse that a buy-to-let property should be put into their spouse’s name may not provoke action. Showing them that they can save X hundred thousand pounds for a morning’s admin is a considerably more effective call-to-action. Importantly, it starts to quantify the once intangible “value” of good advice.

With the fact that advice fees are built into the cashflow modelling tool, the adviser can demonstrate that even with the cost of his or her advice factored in and no change in investment returns, the client is likely to be better off as a result of the planning process they have undertaken. No longer is the client questioning

whether they’re getting their money’s worth from their 1% fee. They can see it very clearly for themselves.

The tool stress-tests advice in the back office, and facilitates answering those tricky questions real-time, in a client meeting. Using the right sort of models in the right sort of way can provide answers to challenging questions in minutes.

Take the dilemma of the high earner with a £120,000 salary who is considering a pension contribution to reclaim the 62% lost between £100k and £122k but is worried about hitting the £1m lifetime allowance. Which of these two fiscal evils will affect them most? By inputting the numbers and comparing the two scenarios, the technology can provide the answer, personalised to the client in a way they

JON ROLFE

Jon Rolfe is a Founding Partner of Epoch Wealth Management, an award-winning financial planning firm which is based in Bath. He has been a financial adviser for almost 20 years. Jon considers himself a cashflow evangelist, having seen first-hand the transformational impact that it has had; mostly the comfort it brings his clients who are faced with difficult financial decisions but also the way it has transformed Epoch’s business.

KEY POINTS

• Cashflow modelling is not just about providing a health check for a client. It’s about combining technology with human expertise to ensure and, most importantly, demonstrate that the right advice is being given.

• Cashflow models are popular with professional introducers such as lawyers and accountants when referring clients with large financial settlements.

• Advisers can stress-test their own advice by bringing cashflow modelling into their back-office processes.

• Cashflow modelling is increasingly relevant for DB transfers. Scenarios reflect the cost of advisers’ charges, enabling the adviser to show, net of charges, the value delivered by the advice process.

• Many users of cashflow modelling tools admit that they have proved their initial pre-conceptions wrong.

Critics of cashflow modelling will argue

that many clients have no real idea what

they will be doing next week let alone in 20 years’ time. But, surely, basing your planning on something is better

than nothing?

ALREADY USING CASHFLOW TOOL

DON'T BELIEVE CASHFLOW

MODELLING IS FOR THEM

BELIEVE THEY NEED

CASHFLOW MODELLING BUT

NOT YET MADE THE PLUNGE

SOURCE: EPOCH WM IFA SURVEY SEPTEMBER 2016

61%

32%

7%

FIG 1

ADVISERS’ USE OF CASH FLOW TOOLS

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The risk of risk-profil ing — part 2

Probably the biggest regulatory and legal risk for financial advisers today is their use of Risk Profiling-cum-Asset Allocation (RiPAA), which has become ubiquitous and the overwhelmingly predominant investment process.

Most risk-profiling questionnaires are designed to force respondents to provide answers which will tend towards the mean – a ‘moderate’ portfolio – at the end of the RiPAA process. The most critical questions are framed to deliberately mislead and divert attention from reality. There is usually a composure question along the lines of, “If markets weakened, would you be willing to accept a loss of 0% / 5% / 10% / 20% / >20%?” Most people opt for 10%, because they realise markets do go down and they can imagine 10% doesn’t seem too bad, but more than 20% would be upsetting. Many questions are designed so most people will pick the median number, resulting in most clients clustering round the mean; this is not accidental. Pairs of questions answered in a contradictory way will balance each other and the algorithm will revert to the mean, not looking any deeper for causes of the contradictions. Total scores will tend heavily towards the three moderate portfolios, flanking the median, in the asset allocation phase, avoiding regulatory notice which may look for extremes in the distribution. Practitioners who use questionnaires regularly will be aware of this clustering phenomenon.

It depends...

The composure question above is just one example of framing a question to distract and mislead. The honest answer about willingness to accept loss,

indeed the honest answer to most key questions, would start with, “Well, it all depends . . .” For example, given the range of options from 0% to >20%, honest (and revealing) answers which clients may wish to make could include:

• “It all depends on whether you will impose a stop-loss at that point. If you can’t, what’s the point of the question? How could I know if a 10% fall was just the beginning of a much more serious market collapse?”

• “If my portfolio has just put on 60% in the last three years, and you can persuade me that any fall is only a technical reaction, with all the fundamentals still in place for the bull market to continue, then yes, I could cope with a 10% fall. However, if I heard on the news that an epidemic of virulent bird flu had been declared across Asia, or that China had sunk a Japanese warship in the Spratly Islands, I would not wish to wait for a 1% fall; I should want out immediately.”

The structure of questionnaires cannot accept ‘open answers’ because that generates more variables than naïve algorithms can cope with. It is no accident that all providers use ‘closed questions’, where one from a small number of pre-determined answers must always be accepted, in default of which the algorithm will normally score in the middle.

The framing of questions is grossly prejudicial to clients: consider the composure question and its range of answers from 0% to >20%. As explained, clients typically tick the middle answer. Historically, the worst top-to-bottom loss in US markets has been 89% and >90% in emerging markets. So, if the question were framed, as it logically should be to reflect what has happened in real life markets, “would you be willing to accept a loss of 0% / 25% / 45% / 65% / >85%?” there is no possibility clients would cluster around the median 45%; there would be a massive weighting towards zero loss.

The assessment of r isk is fundamental to advisers and planners in their quest to ensure that cl ients benefit from effective and appropriate portfol io construction and asset al location. In this feature, the second in his two-part series for I FA Magazine, Keith Robertson fol lows on from last month where he considered the weaknesses of common risk assessment techniques. Here he continues to challenge adviser thinking when it comes to the process of deciding what constitutes “suitable” asset al location.

The structure of questionnaires cannot accept ‘open answers’

because that generates more variables than naïve algorithms can cope with

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RISK OF RISK PROFILINGRISK OF RISK PROFILING

Similarly, if the question contained additional historical information, the responses would be radically more conservative. For example, explaining that markets have quite often fallen 30%-40% in one year and continued to lose money into a second or beyond, a 10% loss just might be acceptable if it ended there, but if it were made clear the bottom of a bear market is totally unpredictable, again one would expect clients to dash for safety at zero loss. Can advisers explain to clients how and why the asset allocation is altered according to answers to composure questions?

The appliance of science?

Giving clients this sort of realistic information is bad news for RiPAA product manufacturers. The whole purpose of risk-profiling is not to inform, educate, or actually uncover clients’ deepest concerns about the risk of loss or the depth of regret likely to be felt, far less to protect them from loss, but to come up with a result that can be spun as ‘scientific’ and looks impressive. Ultimately, the purpose of RiPAA tools is simply to get clients invested with a decent weighting to risky assets, and give an illusion of ‘scientific’ certainty. It’s about marketing, stupid!

Don’t be seduced by other ‘scientific’ claims. Some questionnaires claim ‘psychometric’ validity, implying they are a cut above others. The psychometric tag refers to the measurement of the questionnaire scores to confirm that the range fits a normal (Gaussian) distribution and reflects the general population. This is done by doing the tests on many people (the normative sample), analysing the distribution of the range of scores to confirm it fits a bell curve and calculating a standard deviation. The fact that a provider’s scores have been normed and statistically validated tells one nothing about the validity and reliability of the underlying questions themselves or the variables being tested. If the questions are not fit for purpose to measure what is claimed to be measured, the outputs are still likely to be rubbish for practical purposes – albeit statistically validated rubbish.

Some RiPAA tools claim to measure psychological traits which prove to be stable over time and through market cycles, shown by numerous clients repeatedly completing the same questions over several years. The fact that pretty much the same results come out every time is said to demonstrate the ‘scientific’

strength and validity of these tools. Yet there is no doubt that, during market crashes and resulting loss, people’s feelings around risk change dramatically, and they wish they had had less exposure to it. So why measure a trait that never changes? It is absurd to knowingly measure something that has no diagnostic value, can never alert either client or adviser to possible danger ahead, or uncover fears about loss which will become apparent only after it is too late.

Painting-by-numbers approach

Given the implied promise of RiPAA to measure a client’s ATR and use that information to generate a portfolio specifically tailored to meet his ‘suitability’ requirements, one might reasonably expect a rational process whereby an investment manager looks at the questionnaire answers, detecting the client’s key concerns about things going wrong, and incorporates that information to create a bespoke asset allocation. The opposite happens. Nothing is directly created, but a sort of painting-by-numbers approach is used to push clients into one of a series of ready-made model portfolios (usually near the middle range), using a process which has no basis in finance, economic or mathematical theory.

A set of pre-determined portfolios is laid out to form an ‘efficient frontier’ on a graph, with the x-axis measuring subjectively-selected historical volatility, and the y-axis showing mean return, both in the same units – probably annualised percentages. Incorporating client questionnaire data is technically impossible. ATR, risk tolerance, risk appetite etc., have no units of measurement; at best, questionnaire results can only be an ordinal number, indicating a position within a range. Ordinal numbers (e.g. 5th floor, 1st in a race, 19th hole) cannot be used mathematically: they cannot be added, divided, multiplied, plugged into an equation or mathematical model.

Nevertheless, that is what happens. The x-axis changes from volatility to ‘RISK’ and, no matter what attitude or trait was supposed to have been measured, that metric is deemed to actually be the level of volatility that suits the client. Nobody knows how the x-axis is now calibrated: where does ‘risk-averse’ start on the axis, and where does ‘risk-seeking’ end? Does anyone care? A line is drawn vertically from wherever the score has been overlaid on the x-axis, and where it hits the efficient frontier is deemed to be the suitable portfolio. This painting-by-numbers process is totally illusory and fake.

RiPAA uses average values for return and variance. An asset allocation today will be pretty much the same as six months or six years ago. Using only volatility as ‘risk’ and the assumption that risk and return are essentially stable and fixed, the process is blind to the fact that assets’ riskiness changes dramatically over time. Equities were hugely more risky in March 2008 than March 2009, at which point they were rather low risk over the long-term. The sole determinant of long-term return is the entry point into the asset price cycle. Buying equities today will guarantee below-average future long-term real returns.

Finally, the client is required to sign-off on his risk-profile and the portfolio derived from it, without knowing what the outcome is likely to be, and almost certainly without having understood how RiPAA is supposed to work or having its flaws and weaknesses explained. It is believed that the client’s signature can stand as prima facie evidence against him in the event of his making a future claim. If he does not sign, the intermediary will not proceed. This is risk of an entirely novel sort, one feels.

Business risk

RiPAA brings risk to everyone involved, particularly intermediaries and their clients. The FCA Handbook (PRIN and COBS sections) requires advisers

• To treat customers fairly;

• Act in clients’ best interests;

• Ensure all information is fair, clear and not misleading;

• Ensure all advice meets stringent suitability tests.

The Regulator’s Final Guidance on Suitability [March 2011] does not give any RiPAA system a clean bill of health; the FCA is equivocal and ambivalent. But advisers must understand the tools they use and explain them to their clients. Beware: the Regulator probably does not fully understand RiPAA tools either but, in real life, you can be certain they will always be either right or not wrong when it comes to enforcement.

If that’s not enough, read the Consumer Rights Act 2015. If you say something that the client believes to be true just because you have said it (maybe telling him you can measure his ATR) and something goes wrong, you and your PI insurer may well be liable.

If you don’t believe in fairies, don’t believe in RiPAA systems unless your provider can prove to you that the risk-profiling questionnaire measures something real, definable, and precisely measurable, and can explain how a ‘suitable’ asset allocation is derived.

KEITH ROBERTSON

Keith Robertson spent over twenty years as a practising fee-charging financial planner and investment manager, and was one of the highest qualified practitioners in the UK. Active in both the CISI and PFS-CII, he reviewed and co-authored professional exam course-books, was London’s inaugural Chartered Champion, and continues to sit on CISI masters’ level exam panels and forum committees. Since 2016 he has focused on consultancy and training, particularly investment strategy and risk. He is a fierce critic of current orthodox systematised and quantitative approaches to investment, concerned that advisers are not taught critical thinking to analyse its weaknesses, leaving clients in no position to understand the risks they are being exposed to.

Ultimately, the purpose of RiPAA tools is simply to get clients

invested with a decent weighting to risky assets, and give an

illusion of ‘scientific’ certainty

If you don’t believe in fairies, don’t believe in RiPAA systems unless your provider can prove to you

that the risk-profiling questionnaire measures something real

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RISK OF RISK PROFILINGRISK OF RISK PROFILING

TOM SELBY

Tom Selby is senior analyst at A.J. Bell. He is an award-winning former journalist specialising in pensions and financial services. He began his career at Professional Pensions in 2009 before joining Money Marketing in 2010. Tom became Money Marketing head of news in 2014 and joined AJ Bell as senior analyst in 2016. He has a degree in Economics from the University of Newcastle.

The shifting sands of pension tax policy

Politics by its nature is a short-term game, driven by five-year election cycles and a desire to improve the lot of voters today. Pensions as we know, are long-term, with savers asked to lock their money away until at least the age of 55 and trust that the Government won’t shift the goalposts in the meantime.

This tension is enhanced by the sheer volume of cash which is up for grabs through pension tax relief. The latest Government estimates suggest that almost £40bn a year is spent incentivising people to save in pensions – although this doesn’t take into account the tax taken at the other end on withdrawals. This sum will only grow as automatic enrolment brings millions more people into the pension system.

Constant tinkering

Successive Chancellors have been unable to resist tinkering with pension tax relief to boost Treasury coffers. George Osborne cut the annual allowance twice and the lifetime allowance three times between 2010 and 2015. He also created the horrifically complex annual allowance taper, which gradually reduces pension tax relief from £40,000 for those with total earnings below

£150,000 to £10,000 for those with earnings above £210,000.

Early evidence from his successor, Philip Hammond, suggests this chaotic approach to pension tax policymaking might continue. In the 2016 Autumn Statement – his first major set-piece as Chancellor – Hammond took the axe to the Money Purchase Annual Allowance (MPAA), another

Osborne invention designed to prevent people using the pension freedoms to get a double bubble on tax-free cash.

Without any evidence of abuse, Hammond announced the MPAA would drop from £10,000 to just £4,000 from April 2017.

Plugging the black hole

And things could be about to get worse. If national newspaper reports are to be believed,

Hammond is planning yet another pensions tax– possibly cutting the annual allowance again – in order to plug the £2bn black hole left by his bungled attempt to raise National Insurance contributions for the self-employed.

Let’s just take a moment to unpick exactly what is being discussed here – a permanent reduction in annual savings incentives to bridge a temporary gap in public finances created by the Chancellor’s own error.

Remember that the only reason the Conservatives U-turned on the NICs increase for the self-employed was because it broke a manifesto pledge. The Government still, rightly in my view, wants to pursue the policy - and presumably will if, as expected, the Conservatives claim a landslide victory in the 2020 general election.

Never has the Treasury’s dismissive attitude to the corrosive impact of constant tinkering driven by short-termism been more nakedly exposed than here.

Radical reform shelved

While more unwelcome cuts to the annual allowance may be on the cards in the next Budget,

the Treasury has at least backed away from plans to introduce a ‘Pension ISA’ first outlined by the Government in 2015.

Under the proposal, the pension tax system would have been flipped on its head so that withdrawals – rather than contributions – were free of tax. This proposition undoubtedly appealed to Treasury bean counters keen to engineer a short-term cash boost.

This would have been hugely damaging to saving in the UK and risked undoing the early good work of automatic enrolment. How could savers be expected to lock away their money for decades without an upfront tax incentive to do so? If contributions were taxed, who’s to say a future Government won’t swoop in and tax withdrawals too?

Thankfully, Treasury financial secretary Jane Ellison has ruled out pursuing this reform.

In a letter to my boss, Andy Bell, she said: “As you are aware, an extensive consultation was conducted last year which

considered changes to the pensions tax framework. This concluded that now is not the right time to undertake significant reform.”

Ellison has also suggested the Government plans to take a more measured approach to tax policy in general.

In a speech in January, she said: “The most common ask of us was that we maintain a steady, predictable tax regime that people could plan around.

“They wanted sensible, workmanlike adjustments that provide certainty – or indeed no change at all if that’s the wisest course.

“And that’s the style this Government wants to adopt.”

On pensions, however, the Treasury is failing to heed its own mantra.

It is accepted across the both the industry and the political spectrum that 8% - the minimum contribution under automatic enrolment from 2019 – is not enough for most people to enjoy a decent retirement.

To encourage people to go over and above this level, the Government needs to make a firm commitment not to constantly shift the earth beneath their feet.

Polit ics and pensions have always been uneasy bedfel lows, says Tom Selby , but does the Government’s recent U-turn on changes to the National Insurance contr ibutions for the self-employed mean that we have to brace ourselves for yet more changes to pension legislation?

Successive Chancellors have

been unable to resist tinkering with pension

tax relief to boost Treasury coffers

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POLITICS AND PENSIONSPOLITICS AND PENSIONS

Five common myths about sell ing your financial planning businessThe world of mergers & acquisit ions (M&A) is as complex as it is varied, where everyone has a story of how best to approach the maze, what to expect from it and what might go wrong, says Louise Jeffreys of Gunner & Co. Here she explores some common myths and explains why being properly prepared is the key to successful ly sel l ing your business

Now don’t get me wrong, if you’re selling the shares of your business and we’re talking about transactions in the millions of pounds or thousands of clients, then be prepared – due diligence will be long, detailed and time consuming.

However, if you enter into an asset purchase scenario with a buyer, have a relatively small client bank and straightforward investment approach, then due diligence may not be too dissimilar from an annual compliance review – typically centred around

file-checking a portion of your clients, getting an understanding of your back-office processes and systems, and understanding your accounts and income streams.

Roderic Rennison, of Rennison Consulting, speaking at Gunner & Co.’s seminar, counsels the need for business sellers to clearly articulate a number of steps. He describes these steps as knowing ‘who your clients are and how they may be segmented (in terms of client proposition and

At Gunner & Co., we strongly believe that the more planners and advisers understand about the journey involved in selling their business, the better equipped you will be and the more positive an experience you can have. Around 2 years ago, we began a series of seminars, bringing together experts and advisers on all aspects of selling a financial planning business.

Through the discussions and questions arising from these seminars, it has become clear there are some well-regarded myths which are worth being discussed so that the true situation can be explained. This article aims to bust some of the most common myths.

Many owners of advisory businesses go into a sale process convinced that a share sale is their ticket to leaving behind a long tail of potential complaints from clients, and that these are simply handed over to the buyer.

Whilst it is correct that a share purchase is a ‘warts and all’ sale, to manage their risk, the buyer will ask the seller to agree to warranties to cover any future claims made by any ex-clients. It is worth remembering that those warranties may be time-bound – limiting your association - but they may not.

The breadth of the warranties you are asked to give will generally be established through the due-diligence process. Key to this is how confident a buyer is in the quality of advice which has been

given, after they have ‘looked under the bonnet’ of the business. This adds time and complexity to your sale journey and, depending on the findings, can negatively affect the price paid.

Warranties don’t only cover client complaints. They may go on to cover claims from former employees, disputes/litigation from suppliers, claims on intellectual property rights etc.

Because of its importance, at our seminars we tend to include a full session on what to expect from the legal process, with experts from DWF, Cook & Co. and Herrington Carmichael sharing their experience on this topic.

Whichever route you take, having the support of an adviser who is familiar with financial services transactions is essential.

Warranties don’t only cover client complaints. They may go on to cover claims from former employees, disputes/

litigation from suppliers, claims on intellectual

property rights etc

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5 EXIT STRATEGY MYTHS5 EXIT STRATEGY MYTHS

Meet Louise and the Gunner & Co. team, along with a raft of experts and active market buyers at Gunner & Co.’s Seminar “Building Value in your IFA Business and Preparing for Exit”.

18th May — Bristol24th May — London28th September — Birmingham8th November — London

www.gunnerandco.com

It’s fair to say, that as a broker with a very broad range of relationships across the buying market, I find that there are more buyers in the market than sellers.

However, that does not mean that it will be simple to sell your business, and even less so if you want that sale to be completely on your terms. The best transactions take place where both buyers’ and sellers’ motivations align. That is my job as a broker – to literally ‘match-make’ the connection. But if your criteria to sell is long-winded and, at times, frankly unrealistic, you may find you either don’t sell at all or you spend a very long time looking for exactly the ‘right’ buyer. And having only one buyer which is deemed ‘right’ puts you in a difficult negotiating position.

Every buyer has key criteria of the type of business they want to acquire, typically these are:

• Geographic location of clients

• Average client portfolio size

• Number of clients

• Ongoing advice fees

• Investment approach

So whilst there may be plenty of buyers out there, that doesn’t automatically mean they all want to buy your business.

Being realistic in what you are willing to accept from a buyer – price, payment terms, warranties etc. and genuinely seeking a win-win position for both you and the buyer, is the only way to start this journey.

Focussing too heavily on the details of the contract and the ‘deal’ can have its detriments, if all of that focus is at the expense of what actually happens after it has been signed.

All too often, sellers will focus far too much on the wedding ceremony, forgetting that what’s really important is the marriage itself.

At our seminars, Peter Craddock, Head of Large Business Acquisitions for SJP, has coined this as “questioning the why”. His lengthy M&A experience has seen many a deal lose its way after the contracts are signed, because both parties lost track of WHY they were doing the deal in the first place.

I’ve heard many a (somewhat cynical) planner state that, typically, the chances of getting the final payment due from a deferred consideration are low. Now of course I cannot speak for every buyer out there, but the buyers we work with, who are thoroughly vetted, take successful acquisitions very seriously indeed.

Many big buyers employ specialists to manage the process, from client novation specialists to due diligence experts – it’s a serious investment. Furthermore, the time spent on acquisitions is considerable – there’s no such thing as a simple deal, and doing it properly takes time and focus. And that is focus away from business as usual.

With so much investment of time and money, it makes little sense not to make the very best of every opportunity. Buyers don’t (from my experience) go into a purchase thinking ‘not to worry – if it doesn’t work out we’ll just reduce the final payment’. Those buyers working with brokers like us will focus heavily on client integration, and fundamentally the return on investment – ie on growing the business that they’ve bought and not looking on as it shrinks.

The caveat of course, is to work with a reputable buyer which, more often than not, involves working with a reputable broker.

fee structures), what your investment proposition and platform strategy is, and how your client and management information is organised and stored’.

He argues that advisers going through a sale process should treat the due diligence process “as an exam”:

• Check what is being requested and, if in doubt, seek clarification

• Provide only what is requested

• Check the information twice before it is sent, to ensure accuracy

• DO NOT ‘change’ or ‘doctor’ anything

• Obtain confirmation of receipt and that there are no queries.

As with every aspect of selling your business, the more you understand in advance, the more you can prepare for all eventualities, leading to a stress-free process.

Consistently staying true to your initial aspirations - whilst being realistic – and paying attention to what happens after the deal, are all ingredients of a more successful transaction.

Understanding what happens during transition, how will clients be contacted and by whom, how

much involvement you will continue to have and for how long, and managing the expectations (and the hearts and minds) of any of your team staying with the buyer, is just as important as the details of the contract.

Whilst there may be plenty of buyers out there, that doesn’t

automatically mean they all want to buy your business

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5 EXIT STRATEGY MYTHS5 EXIT STRATEGY MYTHS

Glory days?With the consumer money pages constantly warning of the importance of making effective private provision for retirement, Richard Harvey wonders if they might be going too far. At least, for I FAs, cl ients wil l be somewhat prepared for the scary results of the cash f low forecast!

After a lifetime working as a newspaper hack and spinmeister, it's probably ungrateful of me to advise friends to spend less time reading the media, and get out a bit more.

No, it's not that they are depressed beyond measure about Brexit, Combover Donald in the White House, or whether Jeremy Corbyn can ever be Prime Minister if he keeps wearing that Russian revolutionary's hat.

What concerns them more is the tidal wave of media warnings that unless they have squirreled away each and every year the annual wage earned by, say, an admin clerk, they are destined for an old age of Cup-A-Soup and weekends peering out gloomily from the bus shelter.

The times they aren’t a changin’...

It's unremitting. Leading the field is Times Newspapers, with the sort of editorials which have you asking yourself whether the rope you bought is too long to hang yourself from the bannisters.

The Sunday Times reported on an experiment, in which they asked 29-year-old Charlene Coulbeck to live on the State pension of £159.55 a week, taking into account she would have no mortgage payments and was entitled to OAP discounts at the

swimming pool and cinema.

Surprise, surprise, Charlene's verdict was she couldn't have sustained that lifestyle for much longer - no new clothes or shoes or visits to friends. She didn't actually say if she enjoyed the Odeon's discount Tuesday afternoon screenings for crumblies, or sharing the pool

with ladies and gents best advised to don burkinis.

A few days later, Times columnist Jenni Russell recounted harrowing tales about acquaintances approaching retirement who were facing difficulties at best, penury at worst, as a result of unwise divorce settlements, declining earnings and simple mistakes.

In particular, she highlighted the case of a BBC producer who opted out of the Corporation's lavish pension scheme only to discover, decades later, that the £12,000 per annum he was likely to receive from his private policies, even topped up by the State pension, would severely curtail his more-than-comfortable lifestyle.

Apparently, that £12,000 is a quarter of what he would have received if he had stuck with the BBC scheme.

Loud voices

Meanwhile, other media were trumpeting a litany of alarming warnings, such as....

• An increase in pensioners plundering their savings while wilfully ignoring that the lolly is likely to run out long before they go into "that long, dark night".

• The 'triple lock' on the State pension is not long for this world, meaning that the annual uplift is almost certain to be reined back by a future Chancellor

• One in ten households currently enjoying a middle- or high-income lifestyle will fall into a low-income retirement.

• One in six pensioners live in poverty.

All of which means that IFAs have a gilt-edged opportunity to help clients avoid this kind of

Doomsday scenario. Whether those clients will be willing to tuck away the sort of savings forecast which is needed to give them a decent retirement is, of

course, a different matter. And it does mean that there is no time to waste with action needed immediately - if not sooner.

These tales of misery are principally targeted at those who have worked for private

sector employers, rather than public sector functionaries who - scandalously - are still enjoying pension plans way out of the reach of those whose taxes help to pay for them.

Did you notice that when EU officials were wagging their fingers at Mrs May before Brexit negotiations had even begun, they insisted the UK's checkout bill should be put right at the top of the agenda? The ludicrous Jean-Claude Juncker even suggested it could be £60 billion, or higher.

And what would that pay for? Well, a large chunk would be needed to fund EU officials' pensions. Naturellement!

One in ten households currently enjoying a middle-

or high-income lifestyle will fall

into a low-income retirement.

IFAs have a gilt-edged opportunity

to help clients avoid this kind of

Doomsday scenario

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RICHARD HARVEYRICHARD HARVEY

Slippery Figures

The only thing you really need to know about oil is that you’ll never really know what’s going on. You can market-time your economic cycles and your economic projections and your emerging market crises to your heart’s content, but if you can second-guess what the oil and gas sector is going to do, then you deserve all the riches that life can bestow on you, and the Mystic Meg achievement awards that go with it as well. I certainly can’t.

People have been losing money they can’t afford to lose on oil for as long as we’ve been squirting this lovely commodity out of the ground. And global expert forums such as the International Energy Agency (IEA) have been making fools of themselves for almost as long. Why can’t we seem to get a grip on this most essential of sectors? I thought it might be interesting to consider some of the variables.

The obvious thing to say, of course, is that the production and supply of oil is vulnerable to every kind of disruption – political issues, wars,

labour-market issues, natural disasters, extraction costs, even peer pressure from other producers. But increasingly, there’s been a sea change in the way that crude oil and gas is distributed globally. Not to mention in the way that it’s used. Alternative technologies, new

trade relationships, and much, much more besides.

A changing global scenario

This year, for instance, we’re looking at the May presidential election in Iran, where a vaguely pro-Western cleric is being challenged by hard-liners who say that Iran should press ahead

with the nuclear weapons strategy, and never mind if America shuts its oil exports down. (By the way, did I mention that Iran has the second largest oil deposits in OPEC? Yes, it matters quite a lot who gets in.)

We’ve got Venezuela, one of the largest oil producers in the Americas, And then we’ve got the autumn congress of the Chinese Communist Party, which will decide how much emphasis China will be placing on energy imports over the next five years. (Hint: China has lots of its own oil underground, but it’s waxy and impure, and it’s better for making plastic garden chairs than powering a technological revolution.)

But somewhere along the way, we’ve got the possibility (probability?) that the Trump gambit in North America will run out of steam as the eponymous deal-maker in the White House fails to get his low-taxation growth budget past an increasingly stubborn Congress – and that some of the fire that’s been driving the US equity

I f you think global energy price movements are tr icky to predict, says Michael Wilson , Editor- in-Chief at I FA Magazine, just wait t i l l you’ve seen al l the unknowables in the price.

markets along in recent months will stutter and gutter, as the prospect of easy autumn tax cuts becomes more distant.

Then again, who are we to talk about secure economic prospects? I’m not talking about Theresa May’s forthcoming battles as much as the European Union’s. Six months from now, we may all find ourselves with a sharply slower growth rate which won’t take any comfort from a strengthening dollar. Which, of course, is the currency in which oil is traditionally denominated. A meltdown in Italy’s overburdened banking sector, a populist/rightist swing in Germany or France, and the gloves may be off for the euro.

Only three weeks from lights out?

But the real kicker is that the oil industry doesn’t do extensive supply lines. A tonne of crude oil isn’t as valuable as you might suppose, and it costs an absolute fortune to keep it in a tank above ground, and that’s why the industry prefers to keep it underground – or, to put it another way, it doesn’t let it out of the well until just before it’s needed.

Nobody is exactly sure how much of the world’s oil is stored above ground at any one time, but the IEA’s current estimate (December 2016) is around 5.7 billion barrels for the 35-member OECD group. Of which around 3 billion is sitting in strategic government stockpiles (about 700 million in the United States), another 1.6 billion is in commercial stockpiles, and about 1.1 billion is floating around the world’s oceans in supertankers.

Now, bear in mind that the OECD doesn’t include China or any of the Middle Eastern states, and you’ll appreciate how hard it is to get a handle on the oil flow problem.

The important figure, though, is that 5.7 billion barrels of oil is equivalent to 5.9% of the 96 billion that the world consumed in 2016. Or, to put it differently, about three weeks’ demand. And that isn’t as much as you might suppose.

So who’d be most vulnerable if the supply lines were cut? Probably not the United States, which maintains an estimated 150 days’ worth of consumption in its strategic reserve at any one time – up from just 60 days in 2008! Plus, presumably, an awful lot of shale oil that could be hauled to the surface any time that the price was high enough to make it worthwhile.

In theory, all EU member states are supposed to have 90 days’ worth of emergency rations, but both Germany and France have less than 70 days’ stocks. And poor India has just 15 days. China has an estimated 520 million barrels of official capacity, or around 35 days’ worth, but that’s excluding a billion or so of private and commercial storage. Or, in other words, China may have the thick end of 100 days’ storage. Then

again, it may not.

Why am I going on about the oil storage situation? Mainly

to show how very vulnerable the world could become to

a short-term supply cut. And why the oil price is so very, very vulnerable to short-term speculative price swings.

If you can second-guess what the oil and gas sector is going to do, then

you deserve all the riches that life can

bestow on you

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ED’S RANTED’S RANT

Good news?

Ah, say the optimists, but you’re forgetting something. The bad old days of contango – loosely, the situation you get when forward prices are higher than spot prices – has largely been consigned to history by the sheer volume of easy oil that’s nowadays available at short notice, thanks to a burgeoning billion-barrel fleet of container ships.

And the upshot, the optimists say, is that a lot of the forward-guessing about supply routes and availability is no longer such a major factor. So welcome to the brave new era of price stability. Hip hooray, we shall never again see the International Energy Agency forecasting $200 oil by Christmas when the actual outturn is more like $48. (That was 2008, in case you’ve forgotten it. The OECD hasn’t, for a start.)

But not so fast. One thing we haven’t told you yet is that most of these seagoing tankers are based around the Indian Ocean coast, from the Gulf to Singapore and then up along the Chinese coast toward Japan. And that shipping movements in this region are exceptionally poorly reported, so that figuring out where the hold-ups are is very hard. And that south and east Asia is an awfully long way from either northern Europe or America.

And then there’s the fact that the global stockpiles that help to stabilise prices are about to shrink. The current estimate of 5.7 billion barrels for the OECD is almost a billion more than it was in 2012, which has a lot to do with why oil

prices are stuck around $50 at the moment. But what would happen if those government stockpiles were reduced?

Exponential pressure

Well, brace yourself. This year’s big news from the States is that the Trump Administration is planning to sell off as much as 60 million barrels of its national strategic reserves during the next three years – partly because it feels that having shale oil reduces the need for safety, and partly also because the strategic reserve tanks are getting rather grotty and need a lot of upkeep. Oh, and because a quick billion dollars would help the government to balance the budget, of course.

But what, you ask, is a puny billion dollars in terms of a price mover in a global market that’s worth maybe $2 trillion a year? I suspect that we’ve answered that question already. The tight margins, the hyper-slim stock buffers

and the permanent political uncertainty are enough to add an exponential pressure on

Feeling peaky?

While researching this article, I was not a little concerned to find The Guardian reporting on the coming end of the global fossil fuel market, especially from such a worthy commentator as Colin Campbell, a former chief geologist for Amoco and a vice-president of Fina who had co-founded the London-based Oil Depletion Analysis Centre. And that he was claiming that "about 944 billion barrels of oil has so far been extracted, some 764 billion remains extractable in known fields, or reserves, and a further 142 billion of reserves are classed as 'yet-to-find', meaning what oil is expected to be discovered.” Or, in other words, “the overall oil peak arrives next year." Just kiss your lifestyle goodbye….

I was, however, equally cheered to discover that the Grauniad’s

quote was from faraway 2005, before the global banking crisis kaiboshed industry’s appetite for fuel; before America’s shale oil business had properly got under way; before lithium ion batteries became widespread; and before electric motor vehicles started to look like a serious proposition for the future.

And, perhaps more to the point, before rising oil prices (which topped $140 in 2008) were themselves kaiboshed back to $30 and below by economic recession, better distribution systems, and – let us not forget it – before the oil companies had some second thoughts about getting more oil out of all those ‘uneconomic’ wells using brand new extraction techniques.

Meanwhile, it would have astonished Campbell to know that the United States has now reduced its oil demand for 13 straight years. And that OECD forecasts from 2014 showed the 35-member bloc’s demand dropping to just 38 million barrels per day by 2030, compared with the 55 million that it had been expecting in 2006. A 30% annual drop in projected consumption is no small matter, even if China has been spoiling the party with a soaring increase of its own. Globally, the peak oil idea is like one of those distant hilltops that gets ever further away, the closer you get to it.

Questions for the future

And with good reason. As we approach the halfway mark in 2017, Trump’s America seems hell-bent on questioning every assumption we make about the hydrocarbons market. Will he press ahead with the planned

Alaska pipelines? (Probably.) Will he reopen the coal mines.(I’ll believe it when I see it.) Will America’s hugely loss-making shale oil wells turn a profit before their impressively expanding overdrafts force them into the arms of a government that would be glad to have them?

And what of other countries? Even the most timorous estimates for the long-term cost of all this upkeep are in the region of $8-10 trillion, which would be easily five years’ worth of global revenues. That’s a lot of investment, and the companies that will need to find it will have to weigh it up carefully against the competing attractions of other fuel forms in order to work out how, and whether, it’ll allow them to turn a profit.

That’s an absurd argument, say the oil bulls. The stone age didn’t end because we ran out of stones – rather, it modernised as new inventions change our world, and we adapted it to fit in with competing technologies, and stone hasn’t priced itself out of existence yet. The fact that the market electric cars will be worth nearly $1 trillion by 2027 doesn’t really alter the fact that diesel and petrol engines are a fabulously resilient and versatile market that won’t simply disappear.

And finally, let’s not forget that the global oil industry is bigger than all the world’s metal extraction businesses combined. (Gold, for instance, was worth $170 billion a year, copper $90 billion and iron $115 billion in 2015 against oil’s $1.72 trillion.) We can’t rule peak oil out, but nor should we expect it to do much more than flatten off what seems likely to be a medium-term rise in prices.

Unless, of course, we get a short-term recovery instead? We’ve mentioned four potential triggers already for this year – Iran, France/Italy, China and of course Trump. What else is coming? We won’t know until we know.

Let’s not forget that the global oil industry

is bigger than all the world’s metal

extraction businesses combined

World Petroleum Reserves 2013SOURCE: US STATE DEPARTMENT

May 2017

I FAmagazine.com I FAmagazine.com

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ED’S RANTED’S RANT

CAREER OPPORTUNITIES

Position: Independent Financial Adviser

Location: Leicester

Salary: £45,000

A fantastic opportunity has been created for an IFA within a highly-respected and growing firm of chartered financial planners which specialises in investment and pension advice. They pride themselves on delivering an innovative and bespoke financial planning service.

They have developed a diverse and loyal client base and often keep clients for many years. The nature of the role will be to provide a high quality financial planning advisory service to both existing and prospective clients. In addition, you will be expected to explore and progress business development initiatives to acquire new clients.

You will be given high quality back office support, a competitive package and some leads to help you develop your portfolio of clients.

Responsibilities:

• Managing and maintaining the service proposition to clients through regular contact

• Identifying the most suitable service proposition and gaining referrals

• Engaging clients and building relationships

• Delivering formal recommendations

• Following up new business initiatives

Skills and experience:

• Level 4 Diploma Qualified

• Previous experience in an adviser role

• A high level of confidence, sales & presentational skills and interpersonal skills are also key

Position: Paraplanner

Location: Merseyside

Salary: £24,000

A well established and reputable Wealth Management practice based in Southport is looking for a highly organised and career-driven paraplanner to support their fast-paced business.

They are looking for an experienced individual who has great technical knowledge on pensions, investments and protection and who wants to work in a friendly atmosphere and great environment.

The role will suit either an existing paraplanner or someone who is an experienced IFA administrator looking to progress their career. The successful candidate will be given full support and be working in a motivating and satisfying environment.

Responsibilities:

• Writing suitability reports

• Preparing documentation and research

• Using the software system to request quotations

• Professional relationships with colleagues and product providers

• Updating and managing internal client database

Skills:

• Previous experience is essential in an IFA firm

• Working towards, or a desire to achieve, Level 4 Diploma in Regulated Financial Planning

• Enthusiastic, positive and motivated disposition

• Strong presentation skills

• A passion for financial services

Position: Business Support Team Administrator

Location: Norfolk

Salary: £16,000

Are you someone who enjoys administration and prides themselves on being organised? Are you looking to join a company where you will be supported to develop further and broaden your technical knowledge?

An established IFA firm seeks such a person. They have offices across the East and South East of England with the current vacancy being based in Norwich. You will be working with IFAs, management and compliance professionals who will surround you with professionalism and encouragement.

You will have a background in financial services with a passion for delivering high administration standards and understand the mechanics of an IFA firm.

Role & responsibilities:

• Preparation of new business files

• Review process – complete portfolio review reports

• Complete draft suitability report

• General admin tasks - including client withdrawals, fund switches, amendment of regular premiums

• Submission of new business files process

• Submission of the files to the provider

• Update the relevant business register

• Update the back office system with clients’ correct information and also with correct recommendation details

• Client change of agency and information collection

• Issuing suitability reports with appropriate appendices and updating the systems to audit this process

• Ensure tasks are completed to company standard and delivered within the time scales required

• Ensure you understand the business goals and objectives

Skills:

• Financial services qualifications are an advantage

• Works well in a team

• Good IT skills

• Excellent attention to detail and accuracy

• Good communication skills

• The ability to use your own initiative

Position: Technical Paraplanner

Location: Hertfordshire

Salary: £40,000

A well established and reputable Wealth Management practice based in St Albans is looking for a highly organised and career driven technical paraplanner to support their business.

They are looking for an experienced paraplanner who can demonstrate advanced technical knowledge on pensions, investments and protection and also who wants to work in a friendly, dynamic environment. The successful candidate will be given full career support.

Main activities:

• To produce accurate, compliant, client reports for advisers

• Assist in updating compliant, client report templates

• To collect relevant data in order to complete the reports

• Produce quotations on financial products for comparison

• Processing of investment, pension and protection new business and following the case through to completion

• Collate and upload all relevant correspondence to our True Potential back office system to submit cases for compliance checking

• Assist in client meetings when requested

• Type letters and draft routine correspondence

• Complete annual review procedure

• Maintain all necessary systems

Skills:

• Familiar with Word and Excel

• Report writing skills

• Good team worker

• Good written and verbal communication skills

• Highly Organised

• Able to exercise initiative

Qualifications:

• Essential – Educated to GCE ‘A’ Level, GCSE English, GCSE Maths

• Financial Planning qualifications

• Experience – Three years office experience including at least two years in a similar role/working environment

Position: Client Manager

Location: London

Salary: £32,500

This is a regulated CF30 position. As a minimum the firm requires all its client managers to have experience within a similar role and to be qualified to CII diploma level (4) or with significant progress demonstrated towards achieving this goal.

The daily client manager role :

• Ownership of the client file, from the client service agreement, through to reports and evidence of research

• Ensuring client records are fully recorded and accurate, across adviser office, server records, Voyant and the client portal

• Maintain an ongoing relationship with the clients, keeping them informed, answering queries and arranging review meetings

• Completing relevant research and analysis of client future and existing arrangements, with continual reporting of relevant information via the client portal

• Sourcing clear and relevant investment reports and commentaries in line with client objectives, the firm’s investment philosophy and regulatory requirements

• Completion of quarterly portfolio valuations

• Extensive use of research tools and Excel, along with regular application of tools on the firm’s wrap platforms, chiefly Ascentric, InvestCentre and FundsNetwork

• Working with and supporting the team members of the firm, including other CMs

Basic qualifications at recruitment:

• Degree, plus competent A levels

• Excel competency

Desired requirements:

• Chartered Insurance Institute (CII) Level 4 Diploma in Regulated Financial Planning.

• CII Level 6 Advanced Diploma in Financial Planning (Chartered Financial Planner)

• CISI Certified Financial Planner certification

Position: Senior Paraplanner

Location: London

Salary: £50,000

A senior paraplanner is required to join a friendly, busy and vibrant team. They seek a like-minded individual who is eager to contribute new ideas and has the desire to make a difference.

Ideally you will be Diploma qualified and working towards Chartered status as well as having a history of working within an IFA firm.

Based in Central London, you will be working with the advisers and directors of the firm closely and helping the team of paraplanners around you as the senior paraplanner within the office.

Duties:

• Preparing compliant, technical suitability reports and ‘financial life plan’ reports detailing the adviser’s recommendations for the client

• Manage client annual reviews

• Carry out technical research and analyse data collected on behalf of clients

• Accurately invest client money as per advisers’ recommendations post client meetings

• Liaise with clients answering technical queries

• Proactive in identifying investments/tax saving opportunities for clients

• Manage and prioritise yours and advisers’ workloads

• Evaluate investment portfolios with advisers

Skills & qualifications:

• A minimum of the Diploma in Regulated Financial Planning (Dip PFS)

• Advanced Pension exam AF30 or G60 or demonstrate a high level of advanced pension knowledge

• Achieved or aspires to achieve Chartered status

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Visit the Heat Recruitment website for more details of these and hundreds of other jobs too

www.heatrecruitment.co.uk

Position: Financial Planner

Location: Dorset

Salary: £50,000

A reputable Financial Planning practice with strong financial backing has created an opportunity for a qualified financial planner to join their successful team, become a key member and contributor to the business. You will be working within a dedicated team with a common goal of providing a high-quality advice service to an existing book of introducers and clients. This is a highly profitable organisation which provides a wealth of information on a variety of financial topics and also provides useful tools to help their clients gain a better understanding of the complexities of personal financial planning.

This organisation has been able to prosper though the engagement and dedication to provide a quality client service, with its friendly and experienced staff. The senior team is committed to creating a highly rewarding environment that encourages personal development.

You will be dealing with a mix of professionals, with the opportunity for someone with very strong skills in creating and building relationships, to work with an excellent back office team, looking after and taking over existing clients.

Duties and requirements:

• To provide a holistic financial plan to prospective and existing clients

• Provide exceptional client service

• Adhere to the principles of TCF

• Work towards the company compliance standards and CPD scheme

• Develop and action a business plan to achieve targets and facilitate this with by undertaking regular fact finds, presentations and service review meetings

• Maintain and ensure client files are kept up to date

Skills and qualifications:

• You will be Diploma qualified and working towards or want to work towards Chartered status

• Writing high levels of new business

• Used to dealing with HNW clients

• Currently established with competent adviser status

• Excellent sales and presentation skills

• Excellent telephone manner and client facing skills

• Driven and motivated to achieve targets

• Experience advising on pensions, investments and protection

• Strong experience in financial services

Position: Paraplanner

Location: Wakefield

Salary: £32,000

Do you have, or are you working towards the Level 4 Diploma in Financial Planning and are you looking for a paraplanning opportunity within a reputable company?

Are you experienced in financial planning or looking to support a junior team members?

If so, a reputable home-grown company are looking to take on experienced and qualified Paraplanner for their team in Wakefield.

You will be working within a supportive company which offers help and support to all professionals who wish to expand their development or business growth. There is also a generous company benefits structure.

You will be responsible for assisting a team of experienced IFAs and supporting the junior team. You will be producing reports for a range of business cases at a high level, so attention to detail is required.

Duties & responsibilities:

• Assessment of files/holdings following client meetings.

• Liaising with advisers, providers, administrators and managers.

• Producing high quality, compliant, suitability reports.

• Undertaking fund analysis.

• Problem solving on complex cases.

Requirements :

• The successful candidate must be organised and professional; demonstrating the ability to organise their time, manage activities and meet deadlines.

• He or she must be IT literate with a good knowledge of Microsoft Office.

• Extensive experience in writing technical suitability reports and conducting high quality fund research.

• Experience in providing administrative and technical support to advisers.

• Diploma qualified or at the working towards this status.

And also…

If these specific vacancies are not exactly what you are looking for, please contact us to discuss other opportunities we may be recruiting for that aren’t necessarily advertised. Additionally, refer a friend or colleague to us and receive £200 in vouchers if we assist them in securing a new career.

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If your clients are interested in a diversified portfolio

of tax-efficient investments, then contact us to find out more. We are helping UK small businesses to realise their full potential, whilst giving Advisers the tools to introduce their clients to this exciting investment category.

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