Securities & INVESTMENT November/DecEmber 2013
REthe members’ magazine of theV chartered instituteI forE securities &W investment cisi.org/sireview
Shared profits UK plc’s dividends are in limbo, p20
Douglas Flint HSBC’s Chairman on heading up the bank, p18
The S&IR assesses the impact one year on page 12
Securities & Investment november/december 2013 REVIEW Editor Rob Haynes Consultant Editor Andrew Davis 18 Art Director Steven Gibbon Publisher David Poulton 12 Production Director John Faulkner Managing Director Claire Oldfield Chief Executive Martin MacConnol Advertising Sales Yanina Stachura +44 20 7010 0945 [email protected] 20 Cover illustration Frazer Hudson for Début Art Published on behalf of the Chartered Institute for Securities & Investment by Wardour, 5th Floor, Drury House 34–43 Russell Street London WC2B 5HA Telephone: +44 20 7010 0999 Fax: +44 20 7010 0900 www.wardour.co.uk ISSN: 1357-7069
Communications Editor, Chartered Institute for Securities & Investment Richard Mitchell Contents 8 Eastcheap, London EC3M 1AE Telephone: +44 20 7645 0749 Features Members’ features Regulars Email: [email protected] 12 the big review 22 cpd: backing 5 city view A year since the launch market forces The CISI asks whether of the Retail Distribution Voluntary standards the Start-Up Loans scheme Editorial panel Peter Land, Chartered Brewin Dolphin Review, Andrew Davis could help foster a safer is performing as it should FCSI, Chairman looks at whether the financial services sector Suren Chellappah FCSI Sanford C Bernstein Moorad Choudhry FCSI Royal Bank of Scotland policy is working, and its 6 upfront Simon Culhane, Chartered Institute for unintended consequences… Chartered FCSI Securities & Investment 24 guilt by association News and views from Scott Dobbie FCSI(Hon) Deutsche Bank A non-executive director members of the CISI, Mike Gould FCSI I nvestment Management Association 20 divided on dividends must try to protect his including our regular Amy Lazenby, Chartered FCSI The headline figures suggest tarnished reputation back story by Clay Jeannette Lichner MCSI FTI Consulting a bumper payout of UK ‘Mudlark’ Harris Gregor Logan MCSI Paul Loughlin, Rathbone Investment dividends. Beth Holmes 26 need to read Chartered MCSI Management uncovers a different picture Robert Merrifield, Catch up with this 11 first person Chartered FCSI month’s essential reading Christopher Adams measures Richard Mitchell Chartered Institute for Securities & Investment the effects of the recent US Frank Reardon, JM Finn Government shutdown Chartered FCSI 27 diary Patricia Robertson, Westport Global CISI events and admissions Chartered FCSI 18 profile: douglas flint Jeremy Robinson, Charles Stanley speaks to the Chartered FCSI 30 people: a vine romance The S&IR Hamish Rowan-Hamilton Veridicus Nick Swales, Chartered HSBC Chairman about Markus Ruetimann FCSI Schroder Investment Management FCSI is a student of wine his life and work Nimrod Schwarzmann Arjuna Sittampalam, Sage & Hermes Chartered MCSI Nigel Sydenham, BPP Professional Education Chartered FCSI Alan Yarrow, Chartered Institute for Chartered FCSI(Hon) Securities & Investment
© The Chartered Institute for Securities & Investment (CISI). All rights reserved. Reproduction in whole or part prohibited without prior permission of the CISI. The CISI and Wardour accept no responsibility for the views expressed by contributors to the Securities & Investment Review; or for unsolicited manuscripts, photographs or illustrations; or for errors in articles or advertisements in the Securities & Investment Review. The views expressed in the Securities & Investment Review are not necessarily those held by the CISI or its members.
3
city view
cisi opinion
Use of public money to help entrepreneurs may sound like a good idea, but the Start-Up Loans scheme needs a re-think Banks are not dragons and taxpayers are not mugs small and medium-sized businesses ages, it is called the Start-Up (those employing up to 250 staff) are the Loans scheme and is fronted by lifeblood of the UK economy, contributing to former Dragons’ Den judge, James about half of the workforce (14.4 million people) Caan. It supports entrepreneurs by and £1.6tn of GDP. It is therefore sensible to providing mentoring and unsecured ensure that there is a regular pipeline of new soft loans from £2,500 to £20,000 to start-ups today, which will evolve to be the large controlling principals or shareholders corporations of tomorrow. in the business, typically one to three However, starting a business is challenging, individuals. Since May 2013 it has lent more which is why more than one third of new firms than £46m in unsecured funds to more than fail within a year. One reason is the difficulty 9,000 individuals’ organisations. that budding entrepreneurs have in attracting However, taxpayers may raise an eyebrow at finance. They need finance to turn their ideas the risk-reward ratio, which appears heavily rate of Start-Up loans applicants, who appear into reality, but bankers want to see a proven skewed towards the borrower. Although the in front of their financiers, appears much track record first. The entrepreneurs’ financier is providing risky soft-loan capital, closer to 50%. frustration has been heard by ministers its return is priced at only 3% over base rate However, unlike the dragons or a bank- who are publicly berating the banks to lend and there is a capital repayment holiday for lending proposition, there is no requirement more to this group. 12 months. This isn’t the sort of deal that for the appointed mentors to track how the Bankers, though, are understandably James Caan or his fellow dragons would business is progressing or how the funds are cautious. They are acutely aware that one of contemplate, yet it’s in exactly the same actually being spent; although there is some the conclusions of the banking crisis is that move to now requesting quarterly reports. But bankers lent ‘recklessly’, which means they commonsense start-up lending says that these lent too much, often unsecured or under This isn’t a deal that untried start-ups need monthly financial cash secured, to organisations and people whose flow and forecast monitoring, from suitably business assumptions were invariably James Caan or his fellow experienced mentors, for the first six months, over-optimistic. then quarterly thereafter. This is to spot the Older bankers might recognise dragons would accept early warning signs to guide these entrepreneurs as falling into that category; inexperienced borrowers from failing either to people with a seemingly bright idea but high-risk category for which they would repay taxpayers’ money or to prove they are unrealistic growth projections and no security. expect a potential high-reward return. ready for second-round funding. But banks are not in the business of Furthermore, there are questions about who Given that there is no upside for the Start-Up providing soft or equity finance for any are actually making the lending decisions. It is Loans initiative if a business is successful, and business, let alone start-ups. understood from various sources that the with a margin of only 3%, then it can afford Banks exist to help expand and grow typically three to four panel interviewers only for the odd failure. But is this realistic? business. They make a judgment based on chosen at random from their register may not Even if we assume that the mentoring scheme what they perceive to be the net risk from be as financially savvy as one would expect. is so successful that it halves the normal failure which they price their reward – a fee plus an Borrowers have found that they tend not to ask rate, the level of bad debts will be 16% of its interest rate. As banks do not take equity questions about the viability of the very basic loan book – £8m so far – which would be over positions and, therefore, by definition, limit business plans or the ‘what-if’ questions about twice as bad as the Lloyds Banking Group. their reward, they are not at the risky end what happens when they run out of this We do need to support start-ups. The idea of the market. relatively limited funding provided. Instead, of helping them is an excellent one – but it’s The Government has recognised the there is a tendency to want to motivate the questionable whether rushing into it without entrepreneurs’ dilemma – no track record, so applicant to do well and say ‘yes’ if the plan the proper risk-management process is no traditional source of finance – by creating looks ‘ok’, which delights the borrowers. acceptable, thereby risking taxpayers’ money a special source of finance initially for Of those who appear in front of real dragons, for unsecured borrowers who cannot get entrepreneurs aged 18–30. Now open to all less than 10% receive an offer. The ‘success’ funding from anywhere else. n
5 Upfront News and views from the CISI
partnership CISI signs MoU with the Financial University of Russia
under the Government of the Russian Federation, and George Littlejohn MCSI, Senior Adviser to the CISI. The signing took place in the presence of Vince Cable, Secretary of State for Business, Innovation and Skills, and Igor Shuvalov, First Deputy Prime Minister of Russia. The agreement aims to maintain and enhance professionalism across the University in respect of knowledge, skills and integrity. The Financial University is one of Russia’s leading universities with branches all over the country. In a rare tribute, the ministers welcomed the agreement in a joint communiqué issued at the end of their intergovernmental talks – a first for the Institute. Vince Cable said that the Memorandum was “a significant step forward for UK-Russian trading relations and for the financial services industry in particular”. The MoU was created as part of the Joint Liaison Group between the Back row, from left: Simon Moore of the CBI; Secretary of State for Business, Innovation and Skills Vince Cable; Russian First Deputy Prime Minister Igor Shuvalov; and Aleksandr Shokhin of the City and the Moscow International Financial Centre (MIFC) to help Russian Union of Industrialists and Entrepreneurs (Russia’s equivalent of the CBI). Front row, from with the building of the latter group, co-chaired by City of London Lord left: George Littlejohn MCSI and Professor Mikhail Eskindarov Mayor Roger Gifford and Alexander Voloshin, Head of the Working Group for the creation of the MIFC. The CISI and the Financial University of Russia have signed an CISI Chief Executive Simon Culhane, Chartered FCSI said: “We aim to agreement to increase opportunities in professional development, take this agreement forward rapidly not just to help young Russians qualifications recognition and industry standards between the develop the skills needed for the development of the MIFC but also to two bodies. work in a spirit of genuine partnership so that our members around the The memorandum of understanding (MoU) was signed in Moscow world and those of the other bodies involved can engage directly with by Professor Mikhail Eskindarov, Rector of the Financial University their professional counterparts in Moscow for their mutual benefit.”
integrity Wealth management debate listened to Andrew Fisher, CEO of Towry and Jeremy Marshall, CEO of Hoare & Co, vigorously city debate support the motion at the CISI annual Integrity Debate. John Authers, senior investment Up for discussion: columnist at the Financial Times, and Gina Miller, CEO of SCM Private, robustly opposed it. interest rates effect The audience, of more than 300 CISI members and guests, was asked to vote before and after Will ‘normalisation’ of interest the debate on a five-point scale. rates cause another financial crisis? The ‘before’ vote saw a sizeable majority – 61% Join the next CISI/CSFI Mansion ‘For’ versus 28% ‘Against’, with 11% undecided. House City Debate on 17 February Following the discussion, this swung to 48% ‘For’ 2014 to debate this key issue. versus 39% ‘Against’ with 13% undecided. The ever-vibrant Angela Knight From left: panel members Gina Miller, CEO, SCM Private; John Authers, Although the ‘Fors’ remained the largest FCSI(Hon) will return to her role Financial Times; CISI Chief Executive Simon Culhane, Chartered FCSI; Richard Charnock, Chartered FCSI, Chairman, CISI Integrity constituent, the gap of 39% had shrunk to as moderator. Nouriel Roubini, the Committee; Jeremy Marshall, CEO, Hoare & Co; and, Andrew Fisher, only 9%. star economist who anticipated CEO, Towry Translating these figures into a statistical factor the collapse of the US housing One might assume that a debate with a title ‘UK saw a pre-debate positive figure of 0.49 in favour market and the worldwide Wealth Management – open, honest, transparent of the ‘For’ camp, overturned into a negative figure recession which started in 2008, and fair?’, and an audience largely comprising of 0.11 in favour of the ‘Againsts’, who were thus will lead the action. members of the CISI, would have only one declared the winners. outcome. But the wonderful world of statistics For booking details, see cisi.org/ citydebate reflects otherwise. Footage from the Integrity Debate can be viewed A packed Plaisterers’ Hall in the City of London on CISI TV at cisi.org/tv
6 November/December 2013 cisi.org
The percentage of 680 respondents to a CISI survey who feel more optimistic about the UK economy than three months ago. The confidence level is double that recorded when 61 the Institute last ran the poll in spring 2013 ➳
development events Mentoring in the City CPD highlights
London office. Activities included CV writing A new London CPD series, ‘Turning and mock interviews. There were also several points’, launches in the New Year, presentations by staff members explaining covering important changes facing how they got where they are today, including clients – and members – at key administrator Rudy Rodrigues De Sousa. moments in their lives. Rudy said: “It was great to share my The first event, on 5 February, sails experiences of when I joined the CISI as an Lizzie Haynes into the stormy waters of divorce, apprentice and I hope it inspires the group with mediation expert Lizzie Haynes’ safe hands on Young people attend a session led by CISI employees members to fulfil their own goals.” the tiller and a crew of divorce and separation gurus. CISI staff have won praise for helping a Mildred Talabi, Youth Worker for Forthcoming events will cover, for instance, what group of disadvantaged young people to Communications and Enterprise at the and how to advise when a client sells a business, sharpen their job-hunting skills. The Salmon Salmon Youth Centre said: “It was a fantastic and the best ways to help children in Generation A Youth Centre, based in Bermondsey, London, day and all the young people told me (for austerity) get a property foothold. was supported by the Institute in piloting a afterwards how much they benefited from it. Meanwhile, a recent CPD event, held at Watermen’s new scheme, the Future & Hope Employment The insights from staff – particularly the Hall in the City of London and featuring Rear Admiral Project. It aims to help young people not in young apprentices – were inspirational, and Chris Parry CBE, was the first ever to score 100% in employment, education or training, specifically the CV and interview sessions were a real delegate ratings. The Rear Admiral spoke about risk by improving their communication skills and eye-opener for the young people in horizons at Watermen’s Hall in the City of London. by instilling confidence. understanding exactly what it is employers One attendee commented that the event was At the end of a five-week programme, look for when recruiting.” “the best presentation I’ve seen for decades”. students put their course into practice for the To find out more about Salmon Youth Centre and its For further information about London CPD events afternoon with CISI staff at the Institute’s work with young people, please visit salmonyouthcentre.org visit cisi.org/events
further education Institute teams up with London’s Newham College A course to kick-start is offering this programme.” finance careers in Other reasons the CISI chose the the City has begun college include its 20,000 full- and at east London’s part-time students, who represent largest further diversity and a rich cultural mix. It also education college. welcomes its partnership across Gulshen Raif Newham College London that includes links with Queen students can take the CISI’s new Mary University, London Metropolitan Fundamentals of Financial Services University, University College London course. The CISI designed the level-2 and the University of East London. qualification as a first step in Gulshen Raif, who leads Newham developing the basic knowledge College’s business curriculum, needed to work in the financial said: “The partnership provides an markets industry. It covers issues such exciting new opportunity for as calculating interest rates, participants to gain professional skills advantages and disadvantages in and knowledge, recognised by the bond investments and the links financial services industry.” between savers and borrowers. The 12-week evening course will CISI Managing Director Ruth be open to existing Newham College Martin said: “The CISI is committed students and the general public. to equipping talented people to enter The college is offering the course the financial services industry. The as a standalone qualification and as Fundamentals course can be the part of a set of other commercial starting point. We are particularly programmes. It carries eight credits excited that Newham College, so on the Qualifications & Credit close to the City and Canary Wharf, Framework (QCF).
7 news review
uk network 60-second interview South Wales Sandie Dunn, President of the CISI’s South Wales branch branch launched Why has the South Wales branch been set up? Q Aside from proving their commitment to excellence by passing the CISI’s stringent industry qualifications, members are keen to develop existing skills and keep abreast of current issues. However, travelling outside of the region to CPD events is not time or resource efficient. The new branch will provide CPD opportunities locally and promote the message that Welsh Business professional financial services can be found outside of the City of London, all Minister Edwina Hart endorsed by the CISI as a mark of quality. addresses the launch event of the CISI South Wales branch What does the region have to offer to the financial services industry? The CISI launched a South Wales branch with an Q We have a great pool of talent in South Wales, highly skilled and keen to inaugural event at Brewin Dolphin in Cardiff, attended by maintain and develop competence. Wales also has 25,000 students of financial Welsh Business Minister Edwina Hart. and professional services, which is more than any major city in the UK outside of The branch President is Sandie Dunn ACSI, People London. As Cardiff is a university town, many of these have foreign language skills Development Manager at Legal & General Investments that are in high demand from international businesses. in Cardiff (see 60-second interview, right). The CISI is supporting the Welsh Government’s initiative What do you hope to achieve in the next 12 months? to promote Wales to London’s financial institutions with Q To provide a programme of CPD events that is topical, relevant and stimulating, a view to attracting inward investment and job creation, giving practitioners the opportunity to network with other professionals and share particularly within the Central Cardiff Enterprise Zone. best practice. We’ll also be working with academia and Welsh Government Edwina Hart said: “I wish the CISI branch in South representatives to help develop focused degree modules that will meet the needs of Wales every success and welcome the support of this a growing financial sector, some perhaps incorporating CISI qualifications. prestigious organisation in our drive to promote Wales as an extremely successful, cost-effective centre for What impact is the Welsh Government’s drive to promote Wales as a professional and financial services, which is one of the financial services centre likely to have on the region in the next five years? fastest growing sectors in the Welsh economy.” Q The launch of the South Wales region brings to Attracting more firms to the area will open up career opportunities in the region 19 the number of CISI UK branches. that may have previously required a change of location and help to establish Wales as a hub for financial services. For further information about the branch, email [email protected]
online work experience BEST OF THE BLOGS Placements needed tinyurl.com/focus-rdr 1 In a logical, frank assessment of unscrupulous sellers may exploit Could your company offer work experience to local the impact of the Retail Distribution this to their detriment. Even post students? The CISI is looking for financial services Review (RDR), Martin McKenna from RDR, Young sees exploitation in the firms to provide support for 16–19 year olds studying Focus Solutions writes: “The early marketplace, most notably in the CISI qualifications at schools and colleges, as part of feedback is that the majority of market for distributor-owned wraps its Investing in investment business (approaching and centralised investment solutions. Futures initiative. 90%) is being placed with an Roll on, more regulation. The Institute agreed fee deducted from the product aims to connect itself.” Consumers, he continues, are tinyurl.com/dthomes-rdr motivated students with firms in their local area to still not writing a cheque for the 3The RDR has prompted financial help their learning experience. services they are receiving. The overall services consultancy Dunstan CISI Managing Director Ruth Martin said: “All of us effect is one where the cost of Thomas to conduct its own research know that the opportunity to gain work experience is obtaining products has become into the new landscape. It finds that vital for young people, both to nurture talent and to substantially cheaper, but only for the industry faces a much tougher provide insights into industry. Many firms already wealthier investors. disclosure regime, and that adviser offer initiatives – please help if you can.” charging, together with competency Work experience can vary from a few days to tinyurl.com/sense-rdr training, have forced more than several weeks, and the CISI will help firms to develop 2 In a post that pulls no punches, 20% of independent financial advisers a bespoke programme and provide as many students Steve Young writes on the Sense Blog out of the market. as firms are able to support. The initiative is that the RDR is but the latest attempt supported by the CISI Educational Trust, which is by financial regulators to address the See page 12 for more on the impact able to help fund students’ expenses, such as travel. “information asymmetry which lies at of the RDR. The CISI is also encouraging firms to get involved the heart of the financial markets”. Do you have a blog recommendation? with local schools by giving careers talks or Consumers, he laments, often do not Send it to the Editor: sponsoring the delivery of CISI qualifications. understand the products they buy and [email protected] For more information, please contact Helen Stocks, CISI Educational Development Executive, at [email protected]
8 November/December 2013 cisi.org
➳ CLAY ‘MUDLARK’ HARRIS Andrew Grimes, Chartered FCSI, Compliance Assistant, Investec Wealth & Management
Andrew Grimes Chartered FCSI was so low that he was given more Andrew also pursued CISI has found that for careers, just as on responsibility. Nevertheless, the job qualifications, gaining diplomas the road, there’s no such thing as an was only a 12-month contract, and in Investment Operations and infallible satnav. Andrew went to work proofreading Investment Compliance. He is one Sometimes one is not certain of ads for a small local publisher. of the youngest people to become a the destination; once it’s known, “I suspected something was Chartered FCSI. Andrew has also moreover, the route that works best amiss, with the bosses always in recently acquired the Advanced may not be the most direct. meetings, so I went to a recruitment Certificate in Operational Risk. Andrew, a Compliance Assistant agency. I had an interview with In spite of his preparations, Andrew Grimes, Chartered FCSI with Investec Wealth & Investment what was then called Rensburg and several applications for team in Liverpool, now has a good idea of found out I had been successful on leadership roles weren’t successful. Compliance where he wants to go, but that has the same day I was told the publisher Although disappointed at these Assistant, Investec Wealth & taken time, and there have been a few was in liquidation.” setbacks, preparations weren’t in Management diversions along the way. Andrew started in 2005 in vain and Andrew was undeterred in Andrew achieved good marks valuations, but after 12 months – attempting to advance his career and Do you have a in school, passed his A Levels and when Rensburg merged with Carr put into use the experience gained back-office story? briefly attended Edge Hill University from working life and knowledge from mudlarklives@ in Ormskirk. He quickly discovered, Andrew is one of the high-level CISI Diplomas. hotmail.co.uk however, that he had chosen the Another opportunity did come wrong course, Sports Science, and left youngest people to up. Since January, he has worked as before his second term ended. become a Chartered FCSI a Compliance Assistant reviewing Needing money, he worked as a data investment managers within Investec verifier for the local newspaper, the Sheppards – that function was moved Wealth & Investment’s northern Liverpool Echo, proofreading classified to London. A move to London might offices, including Scotland and Belfast, ads. It was the first of several contract have been possible, but “I just wanted to ensure their compliance with the jobs, including 12 months as a postman, to establish myself in the office where Financial Conduct Authority’s rules the career of two older brothers. I was working.” and internal procedures. He enjoyed many aspects of the Sensing that he had the potential This means that he’s on the road job – being outdoors, staying fit, for a good career at Investec Wealth for about half the time. “At the finishing early – but his supervisor, & Investment, as the firm has become, moment, that’s not bothering me at learning of his academic background, Andrew took the initiative on two all. Once you get to the office, it makes suggested that he should set his fronts. He tried to get experience it all worthwhile.” sights higher. in as many functions as possible in The same applies in career terms: Andrew then worked for NatWest, departments including client accounts, “Getting to Compliance has been a processing outward payments. He options middle office and operational long journey, I would have liked it to started in data entry, but his error rate risk and control. happen sooner but I’m here now.” Illustration: Luke Wilson Luke Illustration:
regulation call for papers Academic journal Ireland joins legal entity
CISI members are invited to contribute to a new quarterly academic journal that will be published in the S&IR. identifier system The journal will feature blind-peer-reviewed papers related to wealth management, capital markets The Irish Stock Exchange authorities, including the G20 and the and banking. (ISE) is helping financial Financial Stability Board, to the global Members can submit to the CISI for consideration services firms in Ireland to financial crisis. original papers of between 1,500 and 3,000 words in comply with new regulatory Prior to the global quality setter, the length, accompanied by an abstract of 80 to 150 words. requirements to manage Central Operating Unit, becoming fully All papers put forward will be refereed by the journal counterparty risk. operational, the ISE will issue a pre-LEI code. editorial panel, comprising practitioners and academics, Gareth O’Neill The ISE has been named Gareth O’Neill, Market and LEI Services or its recommended reviewers. by the Central Bank of Ireland as the Manager at the ISE, said: “A pre-LEI code Professor Moorad Choudhry FCSI has been appointed country’s sponsored provider of a service to is already required by entities in some by the CISI as Editor of the journal. He will chair a panel implement the global legal entity identifier cases, for example for over-the-counter of practitioners and academics who will choose and (LEI) system. derivative transaction reporting under the commission content. He is Managing Editor of the The system will require all organisations European Market Infrastructure Regulation. International Journal of Monetary Economics and Finance, involved in financial transactions to obtain a The pre-LEI code process will also assist author of The Principles of Banking and a member of the CISI unique 20-digit LEI code to enable the any entity that wishes to prepare for full Editorial Panel, which chooses content for the S&IR. identification and linking of parties to LEI implementation.” For further information about the academic journal, including contracts. It is being introduced as part of submission guidelines, see cisi.org/academic the international response by regulatory For further information, see isedirect.ie
9 news review Mike Gould FCSI Adviser, Retail Distribution, Investment Management industry Association Ask the experts… New name WHAT ARE PLATFORMS? for APCIMS Platforms are online services used by such as research and enhanced reporting The Association of Private Client Investment intermediaries (and sometimes consumers options. Wrap platforms offer portfolio Managers and Stockbrokers (APCIMS) has directly) to view and manage their investment analysis, tax-planning strategies and other changed its name to the Wealth Management portfolios. In fact, ‘platform’ is a generic term services an adviser might need. Association (WMA). that describes two different services – fund Because of the different services available on Members of the 23-year-old trade supermarkets and wraps – although the different platforms, costs vary, but a fee of association overwhelmingly approved plans to distinction is now a fine one. 25–40 basis points is a widely used range adopt the new name to reflect better the work The first fund supermarkets in the UK, among the UK’s two dozen major platforms. launched at the beginning of the century, were Over time, with the addition of new features, carried out by the organisation. trading platforms, providing investors with supermarkets and wraps have come to look The move follows research among members access to a range of retail funds, usually at a more and more alike. New Financial Conduct and regular APCIMS contacts that showed a price lower than that available from dealing Authority rules, affecting how all platform clear desire to change the way in which the direct with the fund manager. This price providers are remunerated, are likely to organisation is presented and perceived. reduction was achieved by the supermarket accelerate this process. From April 2014, all WMA chief executive Dr Tim May MCSI negotiating a discount on the fund’s initial platform providers will be banned from said: “This is a big step forward for our charge and, often, on the annual management accepting payment for new business from Association. It means our name now charge as well. Additional benefits to the product providers and will have to switch to encapsulates the key services our members investor came in the form of the ability to view charging their users instead, removing one of provide for their customers and clients.” his whole fund portfolio in one place and deal the main differences between the two. CISI Managing Director Ruth Martin with just one investment administrator. The This regulatory change is affecting the said: “APCIMS has been, and continues to range of funds available on any supermarket market already, with some platform providers be, a very important partner for the CISI, platform varied depending on the willingness moving to early adoption of the new charging particularly in developing and supporting our of fund managers to agree terms with the structure. In order to maintain the effect of the work in the Retail Distribution Review. platform provider and, because of this charge discount previously paid by fund managers, “We fully support the evolution of the for ‘shelf space’, some cheaper fund products, some of these early movers are requiring APCIMS position and brand, and it aligns such as exchange-traded funds, tended not to managers to establish separate unit classes closely with the CISI’s own work in the be available. with lower headline charges, reflecting the wealth management sector.” Wraps were designed to accommodate all an previous net position. As more platform investor’s holdings (not just funds) and were providers enter negotiations with managers, aimed primarily at financial advisers. Using more unit classes are being established. publications these, an adviser could collate all his clients’ When these new unit classes are listed on investments, including shares and bonds, and platforms, some platform providers are taking Update on Change protect all or some of them in tax-efficient the view that all their clients should be invested The next edition of the CISI’s Change – the structures, such as individual savings accounts. in them and are therefore instructing managers regulatory update will be delayed until Advisers used wraps to adjust portfolios and to undertake bulk conversions from the old into make bulk switches of investments on behalf of the new class. This is leading to a rapidly January 2014. multiple clients. The wrap provider’s charging changing environment in fund charges and, at Christopher Bond, Chartered MCSI, model involved the client (or his adviser) paying least for the present, an increasingly wide mix of Editor of Change, said: “I apologise to them direct, so there was no reason to limit the share classes with different charging structures. readers for this. I am temporarily taking investments included. on another regulatory role within the CISI.” Nowadays, platforms include a range of Do you have a question about anything from tax to In the meantime, readers can email different investments, plus additional services virtual trading? [email protected] Christopher with regulatory questions at [email protected]
quick quiz Test your industry knowledge Q1. What is the term used for a rights issue where the only options for the investor are to either take up the rights or reject them? A) An introduction B) A scrip issue C) A deferred share issue D) An open offer
Q2. Which ONE of the following forms part of the Listing Rules in relation to share dealing by directors and senior employees? A) Conduct of Business rules B) Model Code for Directors Dealings C) Sourcebook on Directors and Insider Dealing D) Code of Market Conduct
Q3. The CISI’s published Principles state that members should attain and actively manage Illustration: Cameron Law Cameron Illustration: a level of professional competence appropriate to their responsibilities and to: The S&IR’s Quick Quiz features questions from CISI A) Seek advice from their internal audit department B) Promote the development of others C) Consult with the firm’s non-executive directors D) Consult with the firm’s elearning products, which are interactive revision aids non-executive directors to help candidates prepare for their exams. Answers are on page 29. Q4. Which of the regulators’ supervisory tools is designed to identify, assess and To order CISI elearning products, please call the Customer measure risk? A) Diagnostic B) Monitoring C) Preventative D) Remedial Support Centre on +44 20 7645 0777 or visit cisi.org
10 November/December 2013 cisi.org
first person
Easy does it The recent government shutdown in the US tested the nerves of investors and dampened optimism of a full recovery. With economic output in the balance, the Fed should continue quantitative easing in the words of veteran the cost of new mortgages investor Warren Buffett, for US borrowers, putting at the threat of a US default, risk a revival in America’s The Fed will probably wielded in fraught talks housing market. A parallel respond in the best way over raising America’s debt disagreement over the US ceiling, was tantamount to budget, which led to a it can, by doing nothing unleashing a “political weapon temporary government of mass destruction”. shutdown, has led to corporate Indeed, the gyrations in profit warnings and valuations, the risk of a parts of the US bond market economic uncertainty. correction in equities in the days leading up to Economists have now has grown. October’s deal in Congress – begun quantifying the impact In the meantime, the merely a stop-gap agreement of the autumn’s political Fed will probably respond giving politicians until early drama in Washington. in the best way it can, by 2014 to resolve their According to Stephen Lewis, doing nothing. differences – showed how Chief Economist at Monument To begin ‘tapering’ its nervy investors briefly became. Securities, the shutdown programme of emergency asset Yields on sleepy one-month could cut 0.5% from purchases before the end of bills, which move inversely to fourth quarter US output the year would be a mistake. prices, jumped sharply, growth, as well as making Better to wait until the political evidence that bond traders it difficult for the Fed to judge fog clears in Washington were demanding bigger the underlying strength before making a decision on premiums to compensate for of the economy. whether the economy and the increased risk of holding “This problem will be all labour market has short-term US sovereign debt. the more serious if the improved enough to This was no Lehman congressional committee justify that. moment. Important interbank seeking to negotiate an agreed My best guess is lending markets remained budget package fails to achieve that Ben Bernanke, unmoved, as did other asset its objective and there are outgoing Fed Chairman, classes. But the bond market renewed fears over federal and his successor Janet matters. It is far, far bigger financing,” he says. Yellen, due to take over than the stock market and the On its own, this is unlikely at the end of January, US government bond market to derail the US recovery. The are likely to maintain is the biggest and most liquid in problem, though, is that jobs quantitative easing at the world. growth has recently begun to its current pace until Were yields on US bonds to flag. That, combined with the spring. rise sharply, pushing up the concern over the housing As such, there may cost of borrowing for America, market recovery, means that well be some life left in then the cost of issuing other an entirely avoidable and the risk rally that has kinds of debt – for example politically-engineered hit to sent Wall Street’s bonds issued by companies – growth is the last thing S&P 500 index back would also rise. Debt is an America – and the rest of to record highs in essential source of financing. the world – needs. recent weeks. US Treasuries, moreover, keep The early part of next year, The main caveat the financial system running, then, now looms large as a to this is that this since they are widely used as crunch point for the markets. rally looks, rather collateral in the overnight US politicians could keep worryingly, ever ‘repo’ markets tapped by rolling over the debt ceiling by more dependent on banks. With the US recovery a few months, allowing it to the flow of ultra- finely poised, a drastic continue borrowing to finance cheap money from sell-off in Treasuries would spending. But the continued the Fed. n be unwelcome. uncertainty in such a scenario Already, the prospect of a will be corrosive. And, with US Christopher gradual withdrawal of corporate earnings growth still Adams is the emergency Federal Reserve to live up to the lofty Financial Times’ monetary easing has pushed up expectations implied by stock markets editor
11 The big REVIEW A year on from the implementation of the Retail Distribution Review, Andrew Davis looks at the policy’s effects on finance professionals and clients
12 November/December 2013 cisi.org
cover story
on 31 december 2012, after more than six when the client switches his investment.” years of preparation, the Retail Distribution But there is scope for things to get more Review (RDR) finally came into force. It is a complex still. “All the big platforms are Online poll wide-ranging overhaul of the way consumers negotiating with the fund managers and receive and pay for advice across the full saying ‘when these new rules come in next In an online survey placed on its website, the spectrum of retail investment products and, April you won’t be able to discount your CISI asked visitors whether the benefits to according to the then regulator, the FSA, has annual management charge and we want to customers brought about by the RDR The big three main goals: replicate the volume discount that we’ve outweigh the implementation costs to the • To ensure consumers understand what always had’,” says Gould. As a result, each of financial services sector. amount they are paying for the advice they the major platforms is seeking to negotiate its receive. This meant replacing the old system own, lower AMCs for different funds with under which providers paid commission to different managers. The results: REVIEW advisers on sales of their products – This creates two issues for fund managers. regulators worried that advice was biased First, they may see a proliferation of share Yes: 22% towards high manager payers – with a classes in their funds as different platforms No: 36% direct charge by the adviser to the client. agree their own bespoke deals – hence the • To ensure that clients are told whether their widespread talk of so-called ‘super-clean’ unit Too early to tell: 42% adviser is ‘independent’, and therefore able classes or what Robin Keyte, an independent to advise on all products from all providers, Notable views from the 453 respondents: or ‘restricted’ and so able to handle only “It seems likely that customers will now be “The RDR and removal of commission has certain categories of product and/or those better advised and products more robust. The been to the detriment of many as advice is from a limited range of providers. alternative to these higher costs has been high • To improve the standards of advice on offer now unaffordable to those who, arguably, by requiring all advisers to achieve new costs to compensate ‘victims’ and ‘fines’ via the need it most. All the FSA had to do was professional qualifications, equivalent to the Financial Services Compensation Scheme” enforce equal commission rates for products first year of a degree course. CISI survey respondent (see box, right) across the industry so that it could no longer These goals, now being monitored by the cause any bias. In my view, this part of the Financial Conduct Authority (FCA), are in RDR has been extremely detrimental.” many ways uncontroversial; it is hard to find financial adviser based in the West Country, people who argue that greater transparency calls ‘fund soup’. This process naturally “A good idea in principle but it’s a and professionalism are unwelcome creates operational risk for the funds by sledgehammer to crack a nut.” developments. So to assess the early phase of making their back offices more complex to the RDR, the S&IR has looked at the three run, which increases the opportunity for “Although I agree with the higher academic main groups affected by the reforms. errors to occur. However, it also makes life a threshold requirements for advisers, I believe lot harder for consumers, says Keyte. “They that many small investors have been left Fund providers might want to invest in a fund and there uncovered and disadvantaged.” For the fund management industry, the most might be six different share classes, or eight. obvious impact of the RDR so far has been How on earth do they work out what’s what?” “The very people who need help in choosing the progressive unbundling of the annual Second, because in future all platform will not pay for advice. If people do not read management charge (AMC) that funds levy charges and fund AMCs will have to be the APR rate of the store card they sign, on investors’ portfolios. Before this year, separately disclosed, the volume discounts what chance for longer-term products?” funds typically imposed an AMC of 1.5%, out that platforms currently negotiate with fund of which came a commission payment to the managers in private discussions will become adviser of 0.5% a year, plus another 0.25% to public knowledge – everyone will be able to the latter tend to have lower annual charges. the platform through which the investment see the deal that everyone else is getting. The This could in turn help to push down charges was arranged (see page 10, Ask the Experts belief among fund managers, says Gould, is on passive funds too. on the theme of platforms). that once these numbers are public, fund Second, Gould suggests pressure on Under the first phase of the RDR, the AMCs across the board will tend to level charges for active funds will probably lead to payment to the adviser has been stripped down to the prices negotiated by the biggest a wave of consolidation across the industry in out and must be made directly by the client firms in the industry –reports suggest 0.6%. the coming years. “The perception is that to the adviser. From April 2014, the platform (Funds can still pay platforms for advertising there will be a move towards what people are charge will also be unbundled, leaving a under the new rules but these payments can’t already calling mega-funds so there will be ‘clean class’ AMC for fund management alone represent the cost of entry to a ‘top funds’ list, some funds that are widely available and they at about 0.75%. such as the Hargreaves Lansdown Wealth will get bigger and bigger.” This is likely to But it’s here that the fun begins. The 150 list of funds.) lead to smaller and poorer performing funds changes are already creating a complex and That may ultimately lead to a smaller closing or merging and more consolidation costly situation for funds’ back offices number of more standardised share classes among management companies and because all new business must be conducted in the funds, but it is unlikely to be a platforms, he says. according to the new rules (which will comfortable process for managers. “There If that view is correct, however, it may lead change again in April 2014 owing to platform will certainly be a lot of commercial pressure to a further blurring of the line between regulations) while all legacy business will on managers over their pricing and the active and passive funds, because when continue on the basis as prior to the RDR. expectation is that will put downward active funds become very large, their “It will be a complex situation for at least two pressure on AMCs,” he says. holdings often start to look more like the years as legacy business gradually reduces,” If AMCs on actively managed funds do index against which they are benchmarked. says Mike Gould FCSI, Senior Adviser on fall as a result of pressure from the big fund “I think it’s harder for very large funds Retail Distribution at the Investment platforms, where might this process not to look like trackers,” says Gould, Management Association. “Every time the ultimately lead? “because the bigger you get and the more adviser gives the client some new advice then First, it is likely to narrow the cost gap holdings you have to hold, the more
Illustrations: Frazer Hudson for Debut Art Hudson Frazer Illustrations: the legacy charging structures are switched off between active and passive funds; at present, difficult it gets to hold something ➳
13 that’s very different to the index.” Advisers and intermediaries 8,658 to 4,809. In August 2013, the FCA The risk from a more highly concentrated It should come as no surprise that the biggest estimated there were 32,690 advisers, a 5% supply chain of fund managers, funds and direct impact of the RDR has fallen on increase since the beginning of the year. platforms is that most of the money flows to advisers and intermediaries – they were, Chris Hannant, Director-General of the a smaller number of very large funds and after all, the key focus of regulators from the Association of Professional Financial brands, which could make it harder for new outset. However, even here there have been Advisers, agrees with these numbers: ideas and new types of fund to emerge and unintended consequences of changing the “People are saying it is slightly more difficult gain distribution. way that advisers charge for their services to transact business or it’s taking longer, but By unbundling the way that investment and insisting that they achieve higher it’s natural that if that number of advisers services are charged for, one unintended professional standards. have left, there are fewer people chasing that consequence of the RDR has been to pit the The most obvious of these has been the business and so there are more fish in the sea. major players in the chain – providers and near-universal withdrawal from the mass What we’ve also seen is a lot of consolidation distributors – against each other while a new advisory market of the major banks. and merger activity among advisers and that charging structure is worked out. Some Barclays, HSBC, Lloyds and Santander have trend is continuing.” might argue that if that leads to bigger all quit the market (although Santander companies that are more efficient and continues to service existing clients), while “Any client with less than a £100k liquid therefore cheaper, that would count as RBS has laid off more than 600 in-branch investment is on their own or paying a lot a victory for retail investors. But, advisers. Yorkshire, Clydesdale and Co-op as ever, not all of the side effects have also called it a day. (relative) in fees as they are no longer of this change are likely to be There are thought to have been several economically viable. How is that benefiting predictable or welcome. factors behind the banks’ withdrawal. Partly normal people?” this was due to the cost of retraining their CISI survey respondent large teams of advisers to the new standards; partly it reflects the difficulty of delivering a service to clients with relatively small For those advisers that remain, they are amounts to invest that both meets the new now much better qualified than under the old regulatory standards and makes a profit; regime. CISI Managing Director Ruth Martin and, partly it is thought to reflect the banks’ points out that all advisers have either had to concern at the risk of further potential undertake gap-fill work to build on their penalties for misselling in future. existing qualifications or have had to take Therefore, the first big effect on new exams. “That is pretty remarkable – intermediaries is that there are fewer of them. everyone has had to brush up. There’s been According to trade publication Money no grandfathering,” she says. Marketing, the number of financial advisers One big change for many advisers has been operating on the first day of the RDR was the introduction of mandatory continuing 31,132, down from the 40,566 estimated by the professional development (CPD), although FSA a year earlier. Not surprisingly, the many in the wealth management sector were number of bank and building society advisers already doing this, she says. was down 44% over the same period, from Peter Moores, Chartered FCSI, CEO of wealth manager Raymond James picks up the point: “We see the RDR as a positive move. The issues around transparency, cost and professional standards have been really good for the industry and for our business.” Another major change has been the introduction of mandatory Statements of Professional Standing (SPS) for advisers, which must be renewed every year and which clients can ask to see. “The SPS requires people to declare if they’ve had a disciplinary issue so we are finding out much more about that,” says Martin. This is putting much greater emphasis on integrity as a key issue for advisers, she believes. However, it is too early to tell what effect the new focus on professionalism has had on the customer experience. “Key elements, such as the SPS and CPD, have only been mandatory since the RDR came in, so we haven’t seen a full year of them in operation yet,” says Martin. “In many ways, measuring the effectiveness of the professionalism stream on the end-user will really be a 2014–15 activity.” For firms, the effects of the RDR have been felt on costs – particularly the need to train to meet the new professional standards – and on revenues, where the RDR has required firms to set out clearly for clients, in pounds
14 November/December 2013 cisi.org
cover story
and pence, what it will cost them to use their adviser. In particular, the RDR has seen the abolition on all new investments of the yearly 0.5% trail commission that advisers used to receive from fund managers out of the AMC. Advisers generally have sought to replace trail commission with an annual fee for providing ongoing service. However, if customers do not wish to pay for this, advisers now face a perverse incentive: if they advise these clients to switch their investments they will stop receiving trail commission and so be worse off. This undesirable situation is likely to persist at least until trail commission on all legacy business is finally abolished, possibly in 2016, says Christopher Bond, Chartered MCSI, Senior Adviser to the CISI. “In the meantime, you’re going to find customers locked into investments that may no longer be suitable because the adviser will be strongly disincentivised from telling the customer they and this is arguably the most important of the should be sold or switched.” RDR’s unintended consequences. In the first part of its own three-stage The emergence of a so-called ‘advice gap’, review of the RDR’s implementation, the FCA often said to apply to clients with portfolios of has already highlighted the question of £50,000 or less, is one of the most discussed ongoing service as an area of concern, saying: aspects of the RDR and has several possible “Some firms fell down by not being clear what The FCA’s first review highlighted this causes. The withdrawal of the banks from ongoing services they would provide.” area as one where problems had arisen: “We retail financial advice has left a lot of smaller It also found that some advisers were were also concerned that some firms, while clients without an obvious alternative. The failing to provide customers with a clear idea describing themselves as independent, were latest annual results from fund managers in cash terms of what they would pay for not offering a truly independent service. Hargreaves Lansdown showed that 75,000 advice. Since most advice is still charged for Some firms providing restricted advice were new customers had joined its Vantage as a percentage of the portfolio value, it may not adequately describing the nature of the execution-only platform in the year to 30 June not always be possible to give customers a firm’s restriction,” it reported. 2013, an increase of nearly 18% in client precise cash figure in advance. However, the Keyte says, however, that fewer numbers. Many are thought to be refugees FCA pointed to examples where firms independent financial adviser (IFA) firms from the banks. provided illustrative tables of the fee that than he had feared have in fact given up the However, advisers such as Amanda would be charged on different-sized portfolios independent banner and moved to offering Davidson of Baigrie Davies point to other as providing examples of good practice. As a restricted advice. reasons for the emergence of an advice gap. response to the RDR, many firms, including However, this leaves open the question of Davidson argues that under the previous wealth manager Brewin Dolphin, have how broad a range of offerings now fall under commission-based regime, a cross subsidy published a rate card of client charges for the existed from the wealthier clients of IFAs to first time, ending what had been an array of “Instinctively, I think the RDR is worth the the less well-off because all were paying a historic charging structures agreed with cost, speaking from the asset management percentage of their assets in annual different clients at different times. commission. Once everyone has to pay their side and based purely on common sense and “Even though the wealth management own fees, advisers have a natural incentive space as a whole is probably OK, there are anecdotal evidence. However, I do think it is far to concentrate on attracting and keeping a number of firms that we hear are having too early to have any meaningful data on which wealthier clients – and indeed some firms awkward conversations with clients,” says to reach any firm conclusions” have told investors with smaller portfolios Moores. If the client hasn’t been aware that CISI survey respondent that they are no longer welcome. their wealth manager has been receiving trail Advisers agree that wealthier clients now commission and hanging on to it, this has have a great deal of choice. But there are caused some friction – causing some people to the heading of ‘restricted advice’. These can concerns for the rest. FCA Chief Executive change firms or to go it alone entirely. range from an adviser who covers only Martin Wheatley told the Treasury Select A further area where the RDR has had a certain investment products but looks at the Committee in September 2013: “People with major impact has been on forcing entire spectrum of providers in these portfolios below £50,000 or £100,000 are not intermediaries to rethink how they describe markets, to one that offers a small range of getting the same sort of service that they themselves. Advisers now have to meet strict products from a limited number of providers. were getting, so that is a concern.” criteria in order to be able to describe In theory, both are offering the same type of However, although many less well-off themselves as ‘independent’, as opposed to advice but in practice the two services will be people undoubtedly have less access to advice ‘restricted’. In order to call itself independent, very different, as will the level of choice the than they did – and a proportion of them a firm must show that it can advise clients on customer enjoys. are starting to fend for themselves via the full prescribed range of retail investment execution-only services – other alternatives products and that it covers all the providers of The customers are emerging that suggest the advice gap may those products in the market. If it falls short For customers, the big question that comes not be as serious as some have suggested. on either of those measures, it must tell clients out of the RDR is simple: is it any easier to get A major player at the lower end of the it offers restricted advice and explain what access to financial advice now than it was market is now Legal & General (L&G), those restrictions in practice are. before? The answer would appear to be ‘no’, which since November 2012 has had ➳
15 cover story
delivering advice in a different form”. There is considerable interest in this area and recently the Tax Incentivised Savings Association set up a group to look at how compliant ‘simplified advice’ can be delivered via routes such as these. Keyte set up one such service, Well Money Clinic, last year and says it is now the fastest growing part of his business, attracting enquiries from across the UK at five times the rate of his conventional IFA practice. The service, which charges fixed fees from a published rate card, is delivered via telephone, email and Skype. Solutions may gradually be emerging to address the advice gap that many feared the RDR would open up, but that doesn’t mean everything is rosy for retail investors. Keyte says that some managers are preventing retail clients who deal with them directly (instead of going via a fund platform) from converting legacy units into the RDR- compliant share classes if their investment is valued at less than £1m. One common complaint is that it is harder than ever for customers to work out what they are paying in total for the investment services they receive. Where before, the intermediary, platform and fund management fees were all wrapped into a single AMC, making each element of the overall cost more transparent has ironically made it more complicated for people to add up all the elements of the charge to work out 140 advisers operating via building society customers are able to access about 3,000 if what they are paying overall. In the and Virgin Money branches, and serving they want a wider choice. meantime, clients invested in retail rather clients with less to invest than the sums “We saw that there were a lot of people than clean unit classes may pay more with Wheatley mentioned. “If you’re lucky they’ve forecasting an advice gap before the RDR adviser and platform charges on top of the got £20,000,” says Mike Connolly, L&G came in of about five million people,” says AMC. This will continue until the RDR Spokesman for Wealth Management. “Most of Connolly. “That’s exactly the market that delivers its full benefit and AMCs reduce. them have got significantly below that.” we’ve pitched in at. And it’s interesting to see Perhaps this is the ultimate lesson of the L&G charges these clients an upfront fee of that financial advisers themselves are now RDR – transparency is desirable but it is not 3.5%, with the option of ongoing service for turning back towards that market, lowering the same as simplicity. And for many clients, 0.65% a year. If they choose this, customers their sights a bit but recognising that they simplicity is arguably just as important. get telephone and face-to-face access to the can’t do that for a 1.5% upfront fee, which is adviser on request, what they would and two personal “It seems to me the RDR has had the opposite offer their big statements per year. investing Help with the RDR effect to that which was intended. Protecting This level of costs is customers.” roughly in line with small retail customers through greater visibility L&G is something The CISI’s Professional Refresher online other advisory firms, of fees and charges is all very laudable, however of an exception in the learning system has four modules focusing which are now they are now being priced out of the market. market now because on the RDR: Principles of RDR, RDR charging at least 3% Return to self-regulation and a ‘do no harm’ it has consciously Adviser, RDR Independence and RDR as an initial fee adopted a ‘vertically philosophy, but crack down on the cowboys” Professionalism. coupled with an integrated’ model. It on-going charge CISI survey respondent is already a very Professional Refresher consists of more ranging from 0.5–1% large asset manager; than 50 modules that are free for customers with smaller portfolios. earlier this year it took full control of the to CISI members, or Connolly says that L&G is currently picking Cofunds platform; and it has a direct for £150 to up about 1,000 clients a month, 96% of whom distribution network of 140 of its own non-members. are opting for the ongoing service. advisers, as well as servicing Nationwide’s Modules are also As well as serving the customers of many much larger team. To date, as Bond observes, available building societies, L&G also provides all the regulator has had little to say about this mid- and back-office services to Nationwide’s kind of vertical integration, although that individually. 600-strong team of advisers. In all cases, the may change. service that customers receive is ‘restricted’, When Wheatley gave evidence to MPs Visit cisi.org/ although it includes estate planning and on the advice gap, he pointed to “the refresher for more inheritance tax advice. The core fund range arrival of web-based, internet-based information numbers about 30, says Connolly, but entrepreneurial-type models that are
16 November/December 2013 cisi.org
As Chairman of HSBC, Douglas Flint’s stoic approach is seeing the bank through the burdens of regulation. Rob Haynes reports Flint condition
in less straitened times, being known as a safe pair of hands may not have got you the chair at one of the Big Four banks. Yet late in late 2010, when Douglas Flint CBE assumed the top role at HSBC, safety was clearly at the forefront of the bank’s mind. The financial crisis and the reputational damage the industry has suffered as a result of the payment protection insurance, interest rate swap misselling and LIBOR fixing scandals means the landscape a chairman finds himself in is significantly different than in previous years. Speaking in slow, contemplative tones from his office on the top floor of HSBC’s headquarters in Canary Wharf, Flint’s logical manner hints at a measured mind, almost stoical. “From my perspective you can only play the ball from where it lands – and try to get out of the rough,” says Flint – a metaphor that deftly sums up where many people working in financial services, whether they are chairman or a trainee analyst, now find themselves. “I like to use golfing analogies although I’m no longer much good at golf.” What Flint is good at – and what convinced the powers that be in 2010 – is his familiarity with the regulatory burden now faced by the banking sector. Given the loads created by Basel, ring-fencing in various jurisdictions and a host of other shackles tying down the industry, Flint’s 15 years spent as HSBC’s Group Finance Director means he is ideally placed to navigate the thickets and thorns of a flourishing regulatory jungle. “My succession coincided with a time when there was a considerable amount of regulatory
CV snapshot 2010 – Becomes Chief Financial Officer, Executive Director Risk and Regulation and, later that year, is appointed Group Chairman 2006 – Is awarded a CBE 1995 – Joins HSBC Group and becomes Group Finance Director 1983 – Completes the Program for Management Development course at Harvard Business School 1977 – Joins Peat Marwick Mitchell & Co (now KPMG) training as a chartered accountant. Becomes a partner in 1988 1977 – Graduates from Glasgow University with a degree in accounting
18 November/December 2013 cisi.org
profile: douglas flint cbe
change being visited upon the finance industry. And therefore the board recognised that this Too big to succeed? change agenda would be pretty much a full-time job, and had to happen at a high level.” Where much of the debate around systemic This raises the prospect of a new model for financial soundness has centred on ‘too big the relationship between chief executive and to fail’, more astute voices are wondering chair, essentially one of horses for courses. “The whether banks like HSBC are too big to CEO should be concentrating on the operational succeed. With multiple, complex operations issues, with inevitably less time to do public that cover differing geographies and their policy and regulatory work and, therefore, a attendant regulations, it’s easy to appreciate chair who is knowledgeable of the change agenda is an advantage,” he says. the concern. Given the very specific duties of regulatory “As far as banks are concerned, there is a oversight and the ensuing professional demands real benefit from being large and diversified, placed upon his shoulders, Flint’s personal life is because the scale and diversification gives understandably sedate. “Away from the office, you the opportunity to provide the service it’s all family stuff,” he admits with a smile, that larger clients want,” Flint says. “The “You can only play the itemising his family as a wife, grown-up question is, can you build an architecture of ball from where it children, three dogs and a cat. “It’s important to combine a high-profile day job with a private life control and service delivery with enough lands – and try to get that is fairly normal. It’s important to give checks and balances so that those at the top yourself the chance to unwind.” can be sufficiently assured the system is out of the rough” To extend the golfing metaphor, a significant working as it should?” part of the rough amounts to having to deal Flint is not of the mind that by splitting big with the fallout of a US Senate Permanent banks into smaller parts, the result is any Subcommittee on Investigation. It alleged that more controllable, not least because smaller HSBC failed to apply consistently the rules designed to prevent dealings with ‘rogue’ states entities wouldn’t be able to afford the such as North Korea and Iran, and lacked controls the big banks can afford. “We adequate controls against financial crime shouldn’t be too focused on a single prism of risks, which allowed drug cartels in Mexico to size or complexity. However, when you misuse the financial system. The result was combine the two, you have to be very careful that the bank was fined £1.3bn, not counting that the organisational structure around it the attendant reputational damage. does bring accountability and responsibility In what is clearly a defining characteristic, Flint is refreshingly candid on his bank’s into sufficient intermediary levels.” failings. “We were humbled and horrified to These ideals – accountability and discover findings of such magnitude,” Flint told responsibility – are part of a corporate shareholders at the time. parlance that nourishes the good governance agenda. So too is transparency, which for Strength of character Flint is the salient benefit of the proposed Yet from this position Flint has shown his banking ring-fence. “Greater clarity will help aptitude to turn a crisis into a point of strength. “It’s incumbent on all senior folk in the those critical of the banking system to have a organisation to show leadership,” he says with better line of sight to where the strains and the same sense of candour. “You have to accept stresses of the system lie.” Yet ring-fencing the failings, accept the accountability and be should not be viewed as a panacea for part of the drive to instil the required values, banking’s ills, least of all systemically. skills and processes to give HSBC the best “It’s not obvious to me it will have a chance to ensure these things don’t occur again.” dramatic impact on the aggregate risk in the You also get the impression that in admitting such failings, he has been able to disarm the system – by definition you are simply taking bank’s most vociferous critics by openly the risk and splitting it into two pieces.” accepting accountability. Flint has also demonstrated a proactive stance clients was being reviewed in response to with respect to the issue of tax avoidance, the increased public scrutiny, stating that the legally permissible – yet morally questionable “options of being involved with tax havens – side of reducing your tax burden. He is an will reduce”. important voice in the tax debate: Flint trained It is this strategic mind that sees Flint as a chartered accountant at Peat Marwick closely observe the graces of good governance. Mitchell & Co (now KPMG), where he became With an egalitarian nod, he likens his role partner before moving on to HSBC in 1995, and to conducting an orchestra in the search serving on the Accounting Standards Board and for reasoned consent and instilling the right the Advisory Council of the International culture around him. “Like so many things, Accounting Standards Board from 2001–2004. to gain the confidence of experienced Speaking at HSBC’s annual shareholder individuals they must believe in your meeting in May 2013, he revealed that use of transparency and integrity, and knowledge
Photo: Getty Photo: so-called tax havens by the industry and its of what’s going on.”
19 Divided ON DIVIDENDS Latest research suggest a rosy outlook for the payment of dividends by the UK’s largest companies. But all is not what it seems. Beth Holmes investigates
the latest headline statistics for UK dividends certainly make – at first glance – happy reading. The Capita UK Dividend Monitor – Q3 2013 shows that second quarter dividend payouts by FTSE 250 firms hit a record high, reaching £25.3bn and the forecast for 2014 stands at £101.8bn, an increase of 27.8%. Lloyds Bank, for instance, has stated that it is in a strong position to resume paying dividends in 2014 for the first time since 2008. The broadly optimistic view suggested by the headline figures is shared among many asset houses. “The UK economic recovery looks very well embedded to me, and we are seeing significant growth in many areas, whether it is in services, manufacturing or the housing market,” says Chris White, Manager of the Premier Image: Getty Image:
20 November/December 2013 cisi.org
shared profits
Income and Monthly Income Fund. “I think As the figures from Capita suggest, if companies are doing better, making more dividends are in fact relatively large (see profits and increasing their cash flows, then right), having grown dramatically since 2007, Running for cover the outlook for dividend growth looks even though overall company profitability reasonably strong.” has not performed as well in that time. Research by The Share Centre has shown Over the past 12 months, dividends have Companies have increased the cash they hold that among the UK’s top 350 listed firms, grown about 6.5% in the UK market. White on their balance sheets; net cash, for instance, dividend cover, the ratio defined by profit expects this trend to continue. “The balance has increased sixfold since 2008. The reasons after tax divided by total dividends paid, was sheets of corporate UK are strong… and for this growth, Cooper thinks, relate to the 1.4 at the end of March 2013. The cover ratio future dividend growth feels well supported,” post-crisis financing environment and a lack for these companies has been falling steadily he says. “Companies’ cash flows are very of capital investment. healthy and they are using this to either “I would certainly expect corporate since a peak of 2.3 in 2011, meaning that reinvest in the business, pay increased investment to return,” he adds. “Spare dividends are becoming less resilient to any dividends or buy back equities, which capacity will be exhausted quite quickly as downturn in company profits. The figure of enhances earnings per share.” the economy bounces back, and companies 1.4 compares with average cover ratios of will need to expand again.” They will also just below 0.7 in the second quarter of 2009. Not so rosy… need to upgrade and replace capital Delve a little deeper, however, and the equipment. “We don’t think investment is Total UK Dividends numbers tell a different story. Dividend likely to be a brake on dividend payments. payouts normally peak in the third quarter, Overall growth should enable both to be 2007 – £63.7bn but payments in Q3 2013 failed to top financed.” The estimate from his team at 2008 – £67.9bn payments made in Q2 for the first time since Capita is that it will be at least 2017 before 2009 – £58.9bn 2008. As a result, Capita has reduced its dividends top £101.8bn. 2010 – £57.9bn full-year forecast from £81.4bn to £79.7bn. Economist Danny Gabay, Co-director of 2011 – £69.2bn Furthermore, while it is expected that Fathom Consulting, sees a different factor 2012 – £80.66* dividends will break the £100bn mark in behind the slowdown in dividend growth. 2012 January to September 2014 (a record), this is largely down to the “One very important reason that companies £16.6bn special dividend that will be paid by have been sitting on piles of cash, spending inclusive – £66.5bn Vodafone after its sale of Verizon Wireless. little on investment and not paying 2013 January to September dividends, could be the size of their pension inclusive – £64.7bn “UK plc has poured scheme deficits,” he says. “UK plc has poured £135bn into its pensions black hole, just to *HSBC paid five dividends in 2012, by bringing £135bn into its pensions stand still since 2008. That is money that forward its usual Q1 payout to Q4, thus skewing could have gone into investment or, indeed, the figure for 2012. The January to September figures black hole, just to stand are like for like. dividends.” This sum is broadly equal to one still since 2008” year’s whole business investment spending. With the jury out over the direction of If this is removed, the picture changes dividends in the near term, there is concern then interest rates are going to remain low markedly – a result confirmed by a recent dip that dividend stocks have become too costly. for a considerable period – possibly as long in cover ratios (see box, ‘Running for cover’). Dividend yields on some high-quality stocks as three years – equities are going to provide So what factors might limit the future have fallen and higher valuations are forcing good support.” growth of dividends? investors to choose between higher absolute “Dividend growth has slowed down this dividends and dividend growth. A cautious Taxing times year quite markedly from recent periods,” observer might say that stocks that merge the Tax is another factor in the mix. Particularly says Justin Cooper, CEO of Shareholder two now look expensive. since the financial crash, there has been Solutions, Capita Asset Services. “The most much discussion on why there is such a important factor has been a slowdown in Green shoots… significant difference between the tax profit growth. Companies are, however, very During the financial crisis, of course, cash treatment of dividend-paying equity and cash rich, and one of the key reasons for this that would have been used to pay dividends interest-paying debt, and what, if anything, has certainly been a sharp drop in capital was diverted to more needy areas of the the UK should do about it. John Chown, a investment. That has provided money to balance sheet. Stephen Message, Manager of principal at international tax specialist support dividends.” the Old Mutual UK Equity Income fund, Chown Dewhurst, says: “Did excessive debt There is an important reason why boards says: “Over the past five years, following the have a significant influence on the boom that are being pushed to pay healthy dividends. financial crisis, the mindset of many led to the inevitable bust? The present Cooper continues: “With yields on bonds and businesses has been to reduce levels of debt, arrangements, coupled with the increasing cash so low, investors are relying on equities cut costs and limit longer-term investment.” dominance of pension funds as investors, to provide them their much-needed income, However, the macroeconomic situation definitely encourage an increased ratio of and will have put pressure on boards to keep that is geared toward recovery is also one that debt to equity.” the dividends flowing and growing.” appears to have skewed investors’ behaviour. Chown believes there are unresolved “While interest rates remain low, there is issues the UK must face, which may affect the Follow the money going to be continued demand for equity future of dividend payouts: how should the If companies aren’t investing or paying out income shares,” says White. Yet he doesn’t UK co-ordinate relief from double taxation huge dividends, where is the money going? think we are in the midst of an equity income on international corporate profits with relief Are experts anticipating a rush towards bubble. “Certain parts of the market are (if any) from domestic double taxation on capital investment at some point in the expensive, but I wouldn’t say equity income dividends; and, how much tax should pension future, or are they anticipating higher was an expensive area. And if you believe funds bear on their (now very substantial) borrowing costs? Mark Carney [Bank of England Governor] income from corporate dividends?
21 Backing market forces Voluntary standards markets and the regulation of financial services
In seeking to build a more trusted, less risky financial services industry, policy-makers may have inadvertently created a business environment that is too costly. Yet with voluntary standards, the price need not outweigh the benefits
a voluntary standards market is a commercial system in which actual and potential buyers and suppliers of products and services rely on conformity assessments. Conformity assessments are carried out against standards and can consist of self-certification, second-party and third-party independent verification and certification. With respect to financial services, the CISI joined forces with the BSI (British Standards Institution) to commission Z/Yen Group to explore the area further, looking at: the application of existing standards in the financial services sector; other areas in financial services to which standards markets may be applied; and who would be the potential users of new standards for areas of financial services. The research team engaged with a cross-section of the financial services sector (including the accounting, legal, Image: Getty Image:
22 November/December 2013 cisi.org
continuing professional development
actuarial and trading professions, insurance, regulation featuring voluntary standards. 3. M ore evidence of the benefits and costs of asset management, investment banking, A corresponding new approach to voluntary standards markets is needed. derivatives, foreign exchange and commodity regulation in the financial services sector While there is awareness of voluntary trading) as well as the financial regulatory could bring benefits in terms of industry standards markets, they need to be community, industry bodies, emerging participation, lower cost of regulation and further understood, including their related schemes and the accreditation and increased confidence in the components of risks and opportunities. Such evidence certification community. the financial system. Respondents indicated would also be useful to monitor the Z/Yen held two events in London with that they would welcome more voluntary evolution of voluntary standards markets representatives from financial and standards markets in financial services, and document better their impact on the professional services, trade body associations especially for people, product and process wider economy. and academia to discuss the role of voluntary standards, on their own as well as in 4. A strong financial services community standards markets and their potential in combination with government regulation. should be established around voluntary improving financial services regulation. • Proposals and discussions are underway standards markets. Voluntary standards Researchers interviewed 75 representatives to develop voluntary standards in new markets cannot emerge without a from, or with an interest in, financial areas of financial services, including for community of stakeholders. This fourth services to ascertain how people felt about recommendation is deemed necessary to standards in financial services and in Voluntary standards build confidence in voluntary standards general. A questionnaire was sent to key markets, to encourage participation and stakeholders to inform the research on the could help foster a safer to improve the visibility and credibility of level of awareness of voluntary standards the industry. The community should also markets within financial services. and more trusted seek to promote dialogue between The report finds that voluntary standards financial services sector standard-setting bodies, trade associations could play a greater role in rebuilding a safer and professional institutes, as well as with and more trusted financial services sector. anti-money laundering, capacity trading, relevant government bodies and officials. More specifically it uncovers that: central bank management, hedge funds, 5. E fforts should also be devoted to integrate • Voluntary standards markets are peer-to-peer insurance and lending. voluntary standards markets for already being used for and by financial financial services with wider policies of services, whether around products The report also identifies how the government to increase the attractiveness (eg, ISO 6166 – International Securities industry, standard-setting bodies as well of standards, improve surveillance and Identification System), processes (eg, ISO as policy-makers and regulators could foster cost reduction of accreditation and 20022 – Universal Financial Industry a market for voluntary standards. certification processes, and to increase Message Scheme, or BS 10500 – Anti- It makes five recommendations: dialogue on the promotion of competition Bribery Management System) or people 1. A new approach for financial services and development of markets. (eg, ISO 22222 – Certification for Personal regulation, featuring voluntary standards Financial Planners). markets, should be promoted. Using Initial findings of the research, presented • Financial services appears to be a relatively voluntary standards markets to regulate on 14 October at the ‘Long-Term and low user of voluntary standards markets financial services where and when possible Sustainable Finance’ conference, hosted by compared with other sectors, and measured could lead to added benefits including the CISI and the European Federation of by published standards and standards industry participation, evolution and Financial Analysts Societies, were warmly under development at ISO level. ISO flexibility of regulation, and, of course, received. The final report, which was Technical Committee 68 for financial a lower regulatory cost burden. The first published in November at an event hosted services has published more than 50 recommendation supports this by by the City of London Corporation, is international standards and has a further advocating the creation of a task force and available at cisi.org/standards. Comments 21 under development. of publicity programmes at industry, on the report are welcome – please send • Other international bodies (eg, the Financial national and regional (EU) level to increase them to [email protected]. The Stability Board, the Organisation for awareness of voluntary standards markets launch event at London’s Guildhall, ‘Wake Economic Co-operation and Development, and seize opportunities for the use of up and smell the standards,’ is available to the International Monetary Fund and the voluntary standards as part of new members on CISI TV. International Organization of Securities regulatory initiatives. Commissions) are involved in setting 2. E xisting voluntary standards development standards for financial services that aim to efforts for the sector should be better Alderman Professor Michael improve the stability of the financial system co-ordinated and integrated. This second Mainelli, Chartered FCSI is nationally and internationally. This process recommendation stems from the finding Executive Chairman of Z/Yen Group, the City of London’s of standards development appears distinct that several organisations at national and leading commercial think-tank from the ISO standard development process international levels are involved in and better integration should be encouraged voluntary standards development for on common areas of work. financial services, including ISO, national • Financial services is already a heavily standard bodies (eg, BSI) as well as the regulated sector and more regulation is to Financial Stability Board and other Chiara von Gunten is Z/Yen’s come. Such regulation is complex, involving standard-setting bodies in the sector. Head of Business Development different actors at industry, national and Better co-ordination and integration of and Professional Services in Switzerland. Her interests include international levels, and carries a cost. efforts on common areas of interest could finance, sustainable development Voluntary standards markets could play bring additional benefits in terms of and macroeconomics a greater role, especially in light of efficiency, but also future voluntary developments at the European level towards standards markets development.
23 Guilt by association How should a non-executive director go about protecting his reputation?
24 November/December 2013 cisi.org
grey matters
bob is an experienced senior manager who A few days after the regulator had made has spent most of his working life in the public the results of its review of Optimist Personal favours securities industry. During this time, he and the subsequent fine, Bob received an has been an approved person and held email from Steven, the Chairman of the board-level positions in FSA- and FCA- trustees of Marmoset. THE VERDICT regulated firms for many years. He has Steven said that he had seen the regulatory The apparently well-intentioned actions of always enjoyed good relationships with other news about the fine on Optimist and, knowing Jessica, a bank employee, deprive her firm, industry practitioners, as well as serving on a that Bob was a director, wondered whether panel advising the regulator. the contents of the report and accompanying Newclea, of significant income. This is to Bob is now semi-retired and holds a fine would, or should, have any impact on the benefit of customer firm Acorns, the number of non-executive directorships, Bob’s role as a trustee. employer of Michael, who is a non-executive including one with Optimist, a small wealth director of Newclea. But is this all as open manager. In addition to his non-executive On reflection as it might be and what are the motives and director roles, Bob is also on the board of Up to that moment, Bob had not really responsibilities of those involved? trustees of Marmoset, a small but well-known thought about the matter as having any This was the dilemma that appeared in the and highly respected medical charity. wider consequences, beyond his role with September edition of the S&IR. Readers were An internal review of Optimist’s business Optimist. Since no individual criticism practices resulted in Bob being asked to lead had been made, he felt comfortable remaining invited to vote in a poll on the CISI website an informal study of how the firm met a non-exec, and a trustee of Marmoset, at on the course of action they would advise customer due diligence obligations, such as least for the time being. However, he now felt Newclea to take, choosing from four options. ‘know your customer’ when taking on that perhaps he should review his position in a new client and subsequently monitoring more depth and, in doing so, felt that there The CISI response its transactions. were a number of potential courses of action This dilemma generated a wide variety of open to him. views as to how to respond to what is, in Staying quiet fact, a case of fraud – however unwitting one Bob’s findings were that Optimist’s processes So, what should Bob do? were not of the standard suggested by the or more of the participants may have been. industry guidance. Although this was • He should advise the chairman of The fact that money did not change hands accepted by Optimist’s Chairman, Kevin, he Marmoset of the circumstances and say perhaps caused respondents to show more did not feel it politic to pursue the matter in that the regulatory censure of Optimist leniency than they would otherwise have the face of open hostility from Adam, the was against the company, not him as done, but it should not be overlooked that one an individual and, therefore, there was party suffered a large loss of income and the no reason why he should resign other a similar benefit. The fine vindicates Bob’s from Marmoset. Having said that, all of the suggested report, but it casts doubt on • He should review all of his non-executive responses had their supporters, the least his other appointments directorships and make the various popular one being an option to sack Jessica chairmen aware of his involvement in and involve the police. Perhaps that is Chief Executive, who was resolutely opposed Optimist and its regulatory censure, because we respond differently to cases to taking any action that might upset but leave it to the individual chairmen of ‘white collar crime’ as opposed to, say, customers. Although Bob felt that Kevin to decide what action to take. burglary, but it remains crime nevertheless. should really have pressed the point with Responses A, B and C all suggested Adam, as it could have unfortunate • He should resign his position at Marmoset, severing the connection with Jessica (your consequences, he felt that, as a non-exec, he because its charitable status requires the did not wish to make waves and so accepted trustees to be of absolutely unblemished member of staff) whether by allowing her to the outcome and maintained his position on reputation. Even if he was not named resign or by sacking her, while responses Optimist’s board. personally in the regulatory investigation A and B suggested that Michael and Acorns More than a year had passed since Bob of Optimist, he was a director at the time (the beneficiaries of Jessica’s action) had presented his report when Optimist and, therefore, guilty by association, which should be pursued. This would certainly be was the subject of an in-depth regulatory may damage Marmoset’s reputation. appropriate in the case of seeking financial visit. The outcome of this visit was that the restitution, but it might be difficult to prove regulator was heavily critical of Optimist’s • He should resign from Marmoset, because criminal intent in their actions. procedures, which it felt did not conform it is a charity, but there is no need to with industry norms and regulatory resign his other directorships, because Accordingly, our recommendation is to requirements. In consequence, it levied regulatory censure is an accepted cost involve the police, in which case sacking a substantial fine on Optimist. of doing business. If every director who Jessica would be the appropriate form of Although the regulator’s report was was involved in a business that was dismissal. At the same time, pursuit of very critical, it did not publicly name any censured by the regulator chose to resign, Michael and Acorns should be attempted as individual officer of Optimist as being business would have problems finding their actions fall within the terms of the Fraud responsible for the firm’s failings and there sufficient directors. Act 2006. Although such action might prompt was no external pressure on Bob or any an offer of financial restitution, the prospects other board member to consider their Visit cisi.org/ned and let us know your position. Indeed, Bob felt that, expensive favoured option. of success in obtaining a conviction for fraud though it was, the fine vindicated his report The results of this survey and the opinion against Michael are likely to be determined by and he went out of his way to ensure that of the CISI will be published in the the skill of his counsel.
Image: Shutterstock Image: appropriate remedial action was put in place. February 2014 edition of the S&IR.
25 books
NEW WORKBOOK AND ELEARNING EDITIONS NEW WORKBOOKS AND ELEARNING EDITIONS Need Regulatory titles Investment Advice New workbook and elearning editions Diploma titles (covering exams from 21 November 2013) Workbook and elearning editions (covering to read of the following regulatory titles are exams from 31 December 2013) of the due out now: following titles are out now: The latest publications and study aids UK Financial Regulation (formerly called Securities: This unit ensures that candidates supporting CISI FSA Financial Regulation) – part of the can apply appropriate knowledge and Investment Operations Certificate and understanding of securities, markets and qualifications Certificate programmes. related functions and administration.
UK Regulation & Professional Integrity Derivatives: The aim of this unit is to (formerly called FSA Regulation & provide those advising and/or dealing in Professional Integrity) – part of the derivatives with the knowledge and skills Investment Advice Diploma programme. required for their job roles.
Price: £100 per subject for combined workbook and Price: £100 per subject for combined workbook and elearning product elearning product
NEW WORKBOOK EDITION NEW WORKBOOK AND ELEARNING EDITION NEW WORKBOOK International International Global Introduction to Certificate Operations Securities & in Wealth and Management Investment, Investment Global Operations Arabic version Management Management, part of the Diploma programme, will The Arabic translation of the The objective of the International assist candidates with their International Introduction to Securities & Investment Certificate in Wealth and Investment Management understanding of operations and settlement workbook provides an introduction to the (ICWIM, formerly known as International Certificate in procedures in order to service effectively the world of financial services for people working Wealth Management) is to provide a test of competence operations and settlement needs of a firm and outside the UK. It looks at the economic for individuals engaged in private client asset its clients. The corresponding workbook environment and the participants in the global management (discretionary portfolio management) and (covering exams from 6 December 2013 to 27 financial services industry. A new edition fund management. A new edition of the ICWIM June 2014) is out now, and covers: (covering exams from 11 January 2014) is out workbook and corresponding elearning product (covering • equities, bonds and fixed income now, covering: exams from 21 January 2014) is out now, covering: • funds, cash and money markets • the financial services industry • industry regulation • financial derivatives • the economic environment • financial assets and markets • the trading environment • financial assets and markets • investment analysis and planning • clearing and settlement • equities • lifetime financial provision. • regulation and compliance • bonds • asset servicing and custody. • derivatives Price: £100 for combined workbook and • in vestment funds elearning product Price: £150 • regulation and ethics. Visit cisi.org/bookshop to purchase workbooks, publications and elearning products quickly and efficiently. Price: £75
ONLINE TOOL External specialists Professional Refresher module there is a test which will The CISI relies on industry practitioners to offer their knowledge and The CISI’s help you to determine how much expertise to help create and maintain its exams, workbooks and elearning Professional knowledge you have gained. Refresher is The product currently consists of products. There are several types of specialists: authors and reviewers for a training more than 50 modules, including: workbooks and elearning products, item (question) writers, item editors solution to • anti-money laundering and exam panel members. All of them receive a number of benefits to help you • behavioural finance thank them for their involvement. remain up-to-date with regulatory • conduct risk There are currently around 300 external specialists who have volunteered developments, maintain regulatory • cybercrime to assist the Institute’s qualifications team but more are required. compliance and demonstrate • financial crime continuing learning. • the UK regulatory environment The CISI would particularly welcome applications from specialists to New modules are added to the • taxation. assist with developing exams, Advanced Global Securities Operations, suite on a regular basis and existing Passing a Professional Refresher Commodity Derivatives, Corporate Finance Regulation, Derivatives ones are reviewed by practitioners module is logged under the CISI (level 3 and 4), Exchange-Traded Derivatives, Over-the-Counter frequently. At the end of each CPD scheme. Derivatives, Operational Risk and Securities (level 3 and 4). To register your interest, please contact Iain Worman on +44 20 7645 0609 or Price: Free for all CISI members – otherwise, £150 per user. There are download the application form via cisi.org/externalspecialists also tailored module packages and a reporting management site available for individual firms. Visit cisi.org/refresher for more information.
26 November/December 2013 cisi.org
Diary Events to attend over the coming months ➳
13 january Glasgow CPD training courses TBC Venue: London, unless otherwise stated 14 january Edinburgh 10 december Mifid 2 and the New Regulatory Structure† £500 TBC 12 december Sanctions Breaches – Avoiding Expensive 14 january Leeds Enforcement!† £500 DoubleTree by Hilton, 2 Wharf Approach, Granary Wharf, LS1 14 january Integrity & Trust in Financial Services £300 15 january Tunbridge Wells 16 january Updated Thinking for Packaged Products† £500 The Spa Hotel, Mount Ephraim, TN4 16 january Bristol 21 january Retail Derivatives Update (half day, morning)† £300 Rathbones, 10 Queen Square, BS1 21 january Retail Securities Update (half day, afternoon)† £300 17 january Guildford 28 january Suitability & Appropriateness: Avoid Misselling!† £500 Yvonne Arnaud Theatre, Millbrook, GU1 4 february Getting to Grips with Risk Management – for Non-Risk 20 january London Professionals† £500 America Square Conference Centre, 1 America Square, 17 Crosswall, EC3 5 february Client Assets and Client Money (CASS)† £500 28 january Birmingham 6 february Mifid 2 and the new regulatory structure £500 TBC 11 february FATCA and Global Tax Disclosure – Its Impact on Your 29 january Jersey Clients (half day, morning)† £300 The Royal Yacht, Weighbridge, St Helier, JE2 30 january Guernsey The Old Government House, St Ann’s Place, St Peter Port, GY1 Member and Fellow discounts 4 february Belfast Professional courses discount: Fellows 35%; Members 30%; Associates 20%. Ulster Reform Club, 4 Royal Avenue, BT1 The following discounts are applicable only to one course per year: 6 february Bournemouth Affiliates 30%; Students 20%. J.P. Morgan, Wiltshire Building, Chaseside, BH7 RDR type: RDR guidance To book: cisi.org [email protected] +44 20 7645 0777 To book: cisi.org/events +44 20 7645 0777
London CPD events Branch events 6 january Peace and Quiet in Europe (Please) 10 december Christmas Drinks Reception London School of Economics, Houghton Street, WC2 Birmingham & West Midlands: Metro Bar, 9 january Behavioural and Communication Skills for Wealth Managers 73 Cornwall Street, Birmingham, B3 SWIFT, The Corn Exchange, 55 Mark Lane, EC3 11 december Portfolio diversification with commodities† 14 january Peace and Quiet in Europe (Please) Guernsey: The Old Government House, St Ann’s Place, McGraw Hill, 20 Canada Square, Canary Wharf, E14 St Peter Port, Guernsey, GY1 15 january The Changing Shape of UK Trade 12 december Christmas Drinks Reception Museum of London, 150 London Wall, EC2 Liverpool & North Wales: Circo Bar, Britannia Pavilion, 21 january Financial Services and Social Media Don’t Albert Dock, Liverpool, L3 Mix – and Other Myths 12 december Christmas Drinks Reception America Square Conference Centre, 1 America Square, 17 Crosswall, EC3 Guernsey: Muse, Marina Court, Glategny Esplanade, 22 january Frontline Fund Governance for the New Pension Paradigm St Peter Port, Guernsey, GY1 Z/Yen, 90 Basinghall Street, EC2 20 december Christmas Drinks Reception 28 january Confessions of a Chartist Wealth Manager Manchester & District: The Ape & Apple, SWIFT, The Corn Exchange, 55 Mark Lane, EC3 28–30 John Dalton St, Manchester, M2 For further information about London CPD events, visit cisi.org/events 15 january UBS House View and Year Ahead Outlook† Jersey: The Royal Yacht, Weighbridge, St Helier Jersey, JE2 To book: cisi.org/events +44 20 7645 0777 16 january Generic Leadership Birmingham & West Midlands: Barclays Wealth, CPD roadshows 1 Colmore Square, Birmingham, B4 The CISI is holding a series of roadshows to enable members to 28 january Important Considerations When Selecting Closed-ended discuss with members of its Executive team latest developments in Investment Companies and Exchange-Traded Funds† meeting and documenting their CPD obligations. East Anglia: National Skills Academy, St Andrews House, St Andrews Street, Norwich, NR2 9 december Liverpool Investec, The Plaza, 100 Old Hall Street, L3 To book: cisi.org/events [email protected] +44 20 7645 0652 10 december Manchester Brewin Dolphin, 1 The Avenue, Spinningfields Sq, M3 † This event meets annual CPD requirements for 7 january Newcastle members affected by the Retail Distribution Review. Brewin Dolphin Investment Management, Time Central, Gallowgate, NE1 Please note, all RDR CPD must be relevant to your role.
27 diary
Professional forums events
Corporate finance forum Annual dinners raise cash Annual dinners held by the CISI’s Isle of Man and West Country ISDX, AIM, GXG… what does it branches collectively raised more than £2,000 for charity. all mean? That was the question addressed at a Corporate Finance Forum At the Isle of Man dinner, £1,200 was collected for the Isle of Man event that provided an insight into the UK’s Hyperbaric Medical Facility, which uses oxygen therapy to help a range junior markets. The event, held at Wragge of people from injured sports stars to patients with chronic conditions. & Co in the City of London, featured a line-up Guest speaker was broadcaster Eve Pollard, former editor of both the Marcus Stuttard of top speakers. Sunday Times and Sunday Express. The event, held at Mount Murray Marcus Stuttard, Head of the Alternative Hotel, was attended by 140 guests and was sponsored by ETF Securities. Investment Market (AIM) at the London The West Country event raised £900 for the Outward Bound Trust, an Stock Exchange (LSE), highlighted that while educational charity that runs challenging outdoor activities for young some overseas growth markets have been people. Guest speaker was author Neil Hanson, a prolific ghostwriter quiet, since 2009 AIM has raised £22bn. He whose clients have ranged from a cricket star and a spy to a US show said that the introduction of the Rules for business legend. Ian-Patrick Lauder Nominated Advisers (NOMADs), ahead of Some 90 guests attended the dinner at Exeter University, which also the recent recession, had been timely and the featured musical entertainment and a fun casino. pipeline of deals looked healthy. Ian-Patrick Lauder, Business Development Manager charity trek at the LSE, talked about the criteria for allocation of smallcaps on the AIM platform and Rule 3081, which prohibits the execution CISI team conquers Jebel Toubkal Paul Haddock of trades on exchange at terms that are worse than firm quotes available, except under Nadia Hassan, Nicola Levett ACSI, Alex certain circumstances. With ISDX having changed its rules Blunden and George Littlejohn MCSI from recently, a new points-based system of the CISI embarked on a charity climb of suitability has been introduced. This was Morocco’s mount Jebel Toubkal, which at reviewed by Paul Haddock, Head of Business 4,167m is the highest peak in the Arab Simon Development and Sales at ISDX. He said that world. The climb was in aid of Merlin, a Kiero-Watson most companies will now need minimum UK-based humanitarian charity and the requirements to be admitted (or for existing companies to team raised almost £3,000 from friends remain listed). and colleagues, plus substantial ongoing Simon Kiero-Watson, Head of Markets at GXG Markets, From left, Nadia Hassan, Nicola Levett funding from supporters in the Arab world. said that the firm is about to celebrate two years in ACSI, Alex Blunden and George Littlejohn MCSI George, Senior Adviser at the CISI and London operating a European regulated market and two a former trustee of Merlin, said: “What a junior markets. It uses matched bargain technology and great team effort. We’re grateful to the many CISI members and colleagues is authorised and regulated under Mifid by the Danish who contributed, helping us beat our target by a mountain mile, and to Supervisory Authority, having recognised stock exchange friends in the Arab world who have been inspired to contribute yet further.” status from HM Revenue & Customs, allowing ISAs to invest. He summarised GXG as a market “without red More details at cisi.org/merlin tape” for smaller companies. Nick Bealer, Chartered FCSI chaired the meeting and reviewed other markets that provide services to small and online medium-sized enterprises in the UK, at different levels. Following a question and answer session, Nick concluded the event by saying: “We are exceptionally LinkedIn update fortunate in the UK as our markets are, in many ways, the envy of the world, especially in respect of our now offers a range of LinkedIn subgroups so that members can junior markets.” The CISI connect with colleagues in their region, get updates on local events and discuss industry hot topics. The Corporate Finance Forum is one of six forums run These include networks for Bristol & Bath; East Midlands & Lincoln; by the CISI. The others cover compliance, risk, financial Liverpool & North Wales; Scotland; South Coast; South East and Wales. technology, operations and wealth management. For more information about forthcoming meetings, visit cisi.org/pf Members can go to cisi.org/linkedingroup to join the relevant subgroup and start taking advantage of this benefit.
Membership admissions and upgrades
MCSI Berry Brilliance Financial Nathalie Krekis David Batey Claudia Schuerch 3D Global David Matthews Planning Charles Stanley Joseph Somerville Raminder Singh Mark Nowell BNP Paribas Susi Taylor William Game Credit Suisse Credit Union Central of Abax Nicole Clarke Brooks Macdonald Colin Kerr Luca Arpaio Manitoba Devindra Collappen Brewin Dolphin Edward Channing Charles Thomson Martin Burke Nicholas Rawluk Barclays Dalbinder Bhartti Clare Delaney Charles Thomson Mark Elliott Day Cooper Day Martin Cuthbert Rachel Biggar Canaccord Genuity Close Brothers Karen Emanuel Patrick Day Simon Smith Samantha Dolby Benjamin Bavin Ian Glassock Fiona Lucas Deadalus Partners Alexander Strudley Rory Kilbride Caxton Cordium Jason Porter Stephen Norton Bartleet TransCapital Lucy Walter Hardeep Attwal Michael Strug Ahmed Rawaf Deutsche Bank Indrajith Fernando Andrew Williams Cazenove Coutts Alberto Recchi Arthur Da Gama James Hall Simon Boyle John Ridout Adam Parker
28 November/December 2013 cisi.org
members
Membership admissions and upgrades
Douglas Alexander Royal Bank of Scotland Charles Stanley MoneyWeek Telefonica Europe Psigma Alexander Ianson-Jones Nicholas Smith-Saville Ria Shepheard Samantha West Rafal Szaniawski Christopher Catchpole First Caribbean Bank Santander Cheviot Nigerian Stock Exchange UBS Rathbones Krystle Maynard David Agyei-Pryde Claudia Quiroz Bernard Ahanaonu Alasdair Gaston Corinne Bathgate Fleet Street Publications Saunderson House CIBC Bridget Igiehon Anne-Marie Lobo Rowan Dartington Stephen Bland Ben Williams Jason Ebanks Nomura Kairat Satkyn Ulu James Gardner Fund Advisers Schroders Citi Ifiok Ekwere Russell Terry Sanlam Group Cindy Schuster Crispin Vollers Stathis Koitosis Ogier VSA Capital Vanessa Eve Generali Seven Citibank Ben Hamilton Bonnie Hughes SG Hambros Bank Glen Broadhurst Rana Roushdi Shmuel Andreev Old Mutual WH Ireland Jonathan Torode Hargreave Hale Shell Igor Petreanu Zororo Chirema Miles Nolan Aled Jones Fraser Johnson Citigroup Pictet Whitechurch Securities Chartered MCSI Homebuyer Financial Speechly Bircham Mohammad Talukder Anthony Cheung Benedict Willis Ashburton Services Victoria Younghusband Collins Sarri Statham Pool Reinsurance Yealand Evyleen Bisson David Troy Speirs & Jeffrey Ozan Kazim Richard Hansen Steven Bourne Barclays HSBC Stephen Hall John Kershaw Qatar Finance and Others Harvey Chapel Alastair Barron SS&C Technologies Ravi Lockyer Business Academy Alexander Boni Craig Salisbury Garry Crooks Stacy Collins Thomas Pattenden Josiane Karam Gerard Campbell James Scott Craig Gallie Standard Bank Cornèr Banque Quai Nicholas Falzon Sant Brewin Dolphin Edward Gledhill Peter Tompkins Alejandro Jaussi Peter Bell Manduca Jeffrey Ball Claude Greilsamer TD Direct Myriam Larbi Ravenscroft Robert Fullman Christopher Hynes Ghanshyam Khandelwal Lorna Whalley Coutts Aiysha Choudry Imran Khawaja Alexander Lyell Teresa Pereyra Thesis Oxana Belousova Redmayne-Bentley Rishi Madhvani Charles Schwab Dean Scott Tom Low Ben Taylor Lee Barker Micky Mahbubani Simone Porter Peter Sohier Triple Point Credit Suisse Rowan Dartington Simon Morley Charles Stanley Integrated Financial Graham Robertson Qiaojiam Li James Kitchen Sasan Munro George Coster Arrangements True Potential De Montfort University Royal Bank of Canada James Rawlingson Barlas Remzi Keith McDonald Martin Smith Davide Boglietti Chartered FCSI Chawker INTL FCStone UBS Deutsche Bank Stuart Coppen Arbuthnot Latham Edward Goodchild Mustapha Abbas Rami Naimi Sharon Fairfield Selftrade Jonathan Clatworthy CPL Consulting Invesco Perpetual John George Ramsay EFG Harris Allday Sean Clinton Barclays Luke Anusiowu Matthew Perowne UK Portfolio Amrit Nepaul Seven Nicholas Hair Ferry Financial Investec Management Oliver Williams Stuart Foster Andrew Spivey David Ferry Zoe Bancroft Stephen Wood EFG Private Bank Smith & Williamson Bestinvest Habibsons Bank Cheryl Philp Wingate Anna Daningeli Alison Joss Sam Coppin Agha Ijteba Ali J.P. Morgan Paul Hyland Carol Lindon Nicholas Scarborough Thomas Hawkins HSBC Christopher Jones Other Equiduct David Slyfield Brewin Dolphin Simon Allister J&E Davy Guy Anderson Ryan Hornsby Standard Bank Jonathon Croggon Neil Hutchison James Cahalane Mengran Cai Falcon Joel Harris William Kendrick Killik JSW Steel Chetan Champaneri Mikhail Tabakov Standard Chartered Luke Pearce David Baldry T.P Subramanian Colin Chapman Fisher Bank Ian Pluves James Gatehouse Landesbank Rakis Christoforou Faith Pozzy Omar Nadhmi Brown Shipley Kleinwort Benson Martin Brammer Joanna Dentskevich Funds-Axis Sophia Solanki Barrie Charnley Andrew Kinsey-Quick Lloyds TSB Emmanuel Florendo Luke Martin Stanhope Capital Butterfield Private Bank Richard Stanwell Caoimhin O’Broin Francis Kajura FXCM Securities Luca Marchionni Saskia Mareike Shea Nedbank McInroy and Wood Saketh Kaveripatnam Alberto Mellone Stanlib Broker Charles Stanley Susan Christian Pauline Drysdale Ian Montgomery Halifax Namedi Modisi Mark Henderson Price Bailey Messrs. C. Hoare & Co Martin Murray Laura Wardle Stonehage Cheviot Steven McGregor James Hoare Nicholas Parker Henderson Rowe Jimmy Chan Fraser Wilkinson Quality Comfort Minter Ellison Arun Leon Ramaswamy Jordan Walker Talos Securities Credo Capital Khalid Shahnawaz Edward Lean Christina Stieglbauer Holbein Partner Thomas Binder Nicholas Hooper Raymond James New Kabul Bank Kin Sue Stephen Jones Target Loan Servicing Deutsche Bank Barry Bennett Sahibzada Noor Kristian Vind HSBC Thomas Gardiner Paul Frame Redmayne-Bentley Newton & Garner Alexander Cugley TD Direct Paul Treacy Nicola Loudon Peter Montague ACSI Gurpreet Singh Kristy Appleby EFG Harris Allday Seven Scott Mordrick Alexander David Hardip Kaur Tawana Philip Bailey Ronald Treverton-Jones Nicholas Bowman NYSE Euronext Securities Dan Xie Chris Brewer Hargreave Hale Standard Bank Alexander Stott Simon Pennington Investec Andrew Ellis Guy Feld Christopher Berry Optimus Apex Tautginas Cijunelis John Emery Investec Trading Technologies Alexander Popplewell Ben Harrison J. P. Morgan John Gibson Caroline Jarvis Russell Toop Pursuit AXA Roberto Mandorino Neil Hamer Audrey McKinstry Union Bancaire Privée Yancheng Qiu Peggy Mattock Benjamin Rayner Glen Heselwood Nicola McMurray Alasdair Niall Stewart Quilter Cheviot Barclays James Brearley James Holman James Sharp Warner Matthews Katrina Duffy Robin Bickerstaffe Anna Szylar-Czerniawska Adam Jones Ian Thompson Jonathan Matthews Antony Webb Nigel Brisbane JM Finn Kevin Longmate Jefferies International Others Rathbones Amy Goodson Tamson Martin Obrempong Manu John Sturges Timothy Connell Thomas Perks Christopher Kavanagh JN Financial Mark Meston JM Finn Richard Edwards Ravenscroft Jamieson Mornington Rijwan Ahmed Philip Morgan Hugo Bedford Josephine Morrison Scott Spencer Bestinvest Maxamilian Delamain David Probert Kleinwort Benson Richard Robson Raymond James Sophie Muller Alexander Napper Rupinder Randhawa David Goebel Martin Varley Paul Bridge BNP Paribas Blake Reddy Alex Snaith Lloyds TSB Mark De Ste Croix Claire-Louise Gliddon Julius Baer Kevin Spence Guy Tulloch This list includes admissions Reed Elsevier James Thelwall Sofia Gradoni Clare Spooner Moore Stephens and upgrades from 13 August Sara Louise Bennett Brewin Dolphin Killik Daisy Tate Retirement Solutions to 17 September 2013 Regents University Graeme Cunningham Sarah Crowley Jeffrey Weston Michael Buffini Perinparajah Joseph William Jeffs Kleinwort Benson TD Waterhouse Morgan Stanley Rivers State Ministry of Capital International Lucy Gazmararian Steven Barrick Kevin Gilfillan Finance Tara Marie Lampitt Macquarie Capital Teachers Assurance Nedbank Uche Ideozu Chadwicks Giovanni Della Pesca Company Rebecca Williams Rothschild Radostina Dencheva Menzies Emily Walker Oriel Securities James Cazenove Diya Bhavna Luhar Matthew Cady
Answers to the quiz from page 10: 1:D, 2:B, 3:B, 4:A
29 people A vine ROMANCE
Wine isn’t merely a drink to Nick to have something different or interesting sent industry has its equivalent of the CISI called for a special occasion.” the Wine and Spirits Education Trust. I fully Swales, Chartered FCSI – it’s a Nick, who has enjoyed a 27-year career in intend to take a number of its exams in the liquid asset. Lora Benson reports financial services, says his advice to anyone next few years.” wanting to invest in wine is to do their Nick enjoys teaching beginners the basics ornithology is bird homework, and tread carefully. of wine-tasting, running fun events that include watching. Campanology also “One needs to remember that investing in a wine-based quiz. probably rings a bell with wine is not a regulated activity. There have been “I usually do this for a small donation to the you as a pastime. But what a number of high-profile scams and collapses Percy Hedley Foundation, a charity for disabled about oenology? in recent years. people in the North East, which I chair.” It’s the study of wine – “I employ a wine broker on an advisory basis; At one of these events, Nick got more than Nick Swales, something that Nick Swales discretionary services are also available. I apply he bargained for. He recalls: “One of the Chartered FCSI enjoys outside of his busy job the same techniques to my wine portfolio as I do participants became a little over-enthusiastic at as Regional Director at Rathbones’ new office in to financial investing: research, diversification Newcastle-upon-Tyne. Nick, born and bred in (geographic, style, maturity dates, etc) and so on. the North East of England, is also a member of It takes work but it is fun and interesting and, “One needs to remember the CISI Board and Chair of the Institute’s just like the markets, it is a long game!” that investing in wine is not Education Board Committee. “Wine is a fascinating subject that involves Class in a glass a regulated activity” many aspects; there is the growing itself and Nick says his interest in wine “beyond drinking the effects that climate, geography, soil etc, have a nice glass of red” was sparked when he the tasting stage and took too much red wine on the wine. attended a wine course around 15 years ago. into their mouth which led to them having “There is the business and the politics of wine “Subsequently I took evening classes for to expel it again, all over me! I now wear a and even science involved in its production. about four years and have been on a wine protective apron at wine tastings.” I read about all of these aspects to increase my fact-finding tour in Bordeaux and to several Nick says that consumers can nowadays knowledge of the subject.” international wine-tastings in London.” enjoy good quality wine without spending a Nick’s interest stretches to collecting wine. Another avenue for Nick to indulge his fortune, and he has some useful tips to help in “My collection is in three groups. The first passion is his family holidays, which now bagging a bargain. I refer to as my ‘glug’: this is the small collection regularly include one allotted wine-themed day. “The major supermarkets stock a range of I keep at home for weekend drinking. The “This year, whilst driving back from a European wines unimaginable only ten years ago. Among second group is my investment portfolio, which trip, we stopped off in Reims (the centre of them are some real gems, quality and price-wise is stored professionally in optimum conditions. Champagne production) to visit a couple of but one needs to beware as many of their ‘special I liken this to a nominee account in wealth producers,” he says. offers’ are not so special. My advice is get to management terms. Finally, I have a few In future, Nick would like to gain some know the department head at your local connections at various vineyards that I can call wine-related qualifications. He says: “The UK supermarket and they will keep you right.” He also points to the benefits of paying just a Nick in the barrel hall of wine couple of pounds more for a bottle of wine than producer Château Pichon you might normally. Longueville Comtesse de “This is no truer perhaps than at the bottom Lalande in Bordeaux of the price range,” says Nick. “In a £5 bottle of wine in the UK, the following broad numbers apply. There is fixed duty of £2 on the wine, the bottle, cork or screw top, the label and transportation may add another 75p and there is the retailer’s margin of around £1 and VAT at 20% on all of this, meaning that you get only about 50p worth of wine. Increase your spend to around £7 and you will double the amount that is expended on the wine itself and thus you ought to see a noticeable improvement in quality.”
Got an interesting hobby? Contact Lora Benson at [email protected]. If your story is published, you will receive £25 of shopping vouchers.
30 November/December 2013 cisi.org