What does 5 star service really mean?

Defaqto recently awarded Standard Life the Gold Platform Service Rating for 2016, giving us 5 Star Platform Rating and Gold Service Rating for a second consecutive year.

This got me thinking about 5 Star service and what it really means.

For Defaqto to award the 5 Star rating, a provider must have to consistently score high satisfaction levels to adviser clients across the range of areas including the administering of new and existing business, the platforms design and management and e-business capabilities.

But what about elsewhere? Does 5 star service mean different things in different industries?

Many companies use the Net Promoter Score (NPS) to determine their clients satisfaction. This measures how loyal your clients are by asking one simple question How likely are you to recommend brand X to a colleague using a scale from 0 to 10 where zero means not at all likely and ten means very likely.

Those that score high have generally taken the time to build relationships with their clients and typically respond quickly to queries and problems.

So in the advice industry, what does five star service look like?

Research on the subject shows that referrals from others are valued when it comes to choosing a financial adviser.

According to our Generation Advice report (November 2015), people seek financial advice for a variety of reasons, the majority are interested in expertise and help with planning for the future and some are interested in making the most what they have.

Whats interesting is that, regardless of what particular financial products a client is looking for, what they value most from their adviser is that they are understood (75%).

This is particularly interesting given that since April 2015, pensions are more inheritable than ever. So, if advisers get 5 star service right, they have an opportunity to become a trusted source, and a clients assets can be kept under the management of the firm even after they have been inherited by children and grandchildren.

To find out more, and to give your view, have a look at my latest blog, what makes 5 star advice?

Noel Butwell is distribution director at Standard Life

Profile: Rathbones' Mike Webb on his reputation as a turnaround king

Financial services was not the plan for Rathbone Unit Trust Management chief executive Mike Webb. In his younger days he was headed for stardom, performing stand-up comedy, playing in a band and planning a career in acting.

Unfortunately for the young Webb his bank manager had other ideas, and after two seasons at the Edinburgh festival and an array of random jobs, including off licence manager and working in a mortuary, the bank called in its debts and Webb headed to the City.

In 1986 he followed his father's footsteps into finance, joining Hambros Bank. He did not intend to spend his career there, just pay off his debts and then continue on the comedy circuit, but the introduction of the Financial Services Act lured him in.

His law degree from university (which he picked because it was something new and then rapidly discovered he did not like it) put him in a unique position. He was able to work with senior members of the business across the whole firm to implement the changes as a result of the regulation, and was rewarded by becoming the youngest director in the group.

Webb's next move set the tone for much of his career. In 1991 he joined Prolific Fund Management, a business that had fallen from grace and needed to be turned around. It was headed by Mike Vogel, a man he says had a big impact on his career and was an "inspiring leader".

Working at Prolific gave Webb a taste for being something of a turnaround king throughout his career, and he admits he enjoys taking a fledging or out-of-favour business and building it back up again.

He says: "I'm quite a big fan of the challenge. If you join an already incredible business it's difficult to know where to take it next."

Webb says the key is to "centre it around the investment talent, install very good operations and a really high quality distribution and marketing team" and half the hard work is done.

His next challenge was to join GT Global Asset Management in 1996, where he became head of UK retail. He spent two years at the "very entrepreneurial and exciting" business, building up the retail side before it was sold to Invesco in 1998.

He joined Invesco with the move and grew the assets in the UK retail business from ?1.2bn when he started to ?9bn.

He says the business was "very, very successful" and it subsequently merged with Perpetual in 2001, where Webb was appointed chief executive.

He remained at Invesco Perpetual for another three years before a disagreement with senior management led him to leave.

"I disagreed with some of the policies at Invesco Perpetual. At that point I had been working for 20 years and I just didn't have the appetite for it, so I took 18 months out."

Webb travelled around the world for two weeks at a time, coming back to see his three daughters in between trips.

"I had the most awesome time. I learnt to scuba dive, I went on safari and I swam with sharks. I just really enjoyed myself," he says. Ultimately, however, he decided to return for a new challenge.

He admits getting back into the industry was not a cakewalk, as there were few positions that were as senior as the one he left at Invesco Perpetual.

He eventually found a role at Hermes Fund Managers, which was predominantly institutional and wanted to grow its retail business, but after five years there a difference of views on the way the company should go meant he left for Rathbones.

"It sounds like I am always falling out with people, but I'm not," he jokes. "I needed a different challenge and I wanted to move firmly back into retail. At Rathbones I could see the challenge in reinvigorating the unit trust business after it fell on hard times in 2007/08."

As for RUTM's turnaround, he says he is "nowhere near done yet". When he joined in 2010, the assets in the business had dropped to ?750m after being hit particularly hard in the downturn.

Last results for the three months to the end of 2015 showed the business' funds under management were ?3.1bn, up from ?2.5bn a year earlier.

But while Webb wants to double these assets, he says he is happy with Rathbones being a mid sized firm. "I don't buy into the belief that you have to be small or large. You just have to be focused, or offer all things to all people."

Indeed, his main goal is to ensure RUTM is seen as one of the leading specialist investment houses in the UK. He recognises this will take time and, as such, is looking at five years to achieve it.

He has taken a number of steps to restructure the business and streamline its fund offerings, which has resulted in the redemptions being stemmed and retaining talent.

Most recently Webb changed the distribution structure at the company, moving the unit trust sales team to work across the entire Rathbones business to sell all of the company's wares.

He thinks the fact investment managers at Rathbones hold responsibility and accountability for clients' investments is a rarity that sets the group apart in the market.

Webb says the company's strong focus on risk controls to ensure consistency across each investment manager's portfolios and positions strengthens the process and means clients across the country know what they are getting.

So once the challenge is complete at Rathbones, will we be seeing Webb return to his acting roots? "Definitely not. I can't think of anything worse now. You have to have the arrogance of youth to be able to do that," he says.

CV

March 2013-present: Group executive director, Rathbone Brothers

Feb 2010-present: Chief executive, Rathbone Unit Trust Management

2006-2010: Executive director, head of business development, Hermes Fund Managers

2003-2004: Head of distribution, Invesco UK

2001-2003: Chief executive, Invesco Perpetual

1998-2000: Chief executive, Invesco Retail

1996-1998: Managing director, GT Global Asset Management

1991-1996: Sales and marketing director, Prolific Financial Management

1986-1991: Marketing executive, Hambros Bank

Five questions

What's the best advice you've received?

Treat others as you would have them treat you.

What has had the most significant impact on financial advice in the last year?

Pension freedoms, which provides the best opportunity for advisers to show their value.

What keeps you awake at night?

My own snoring.

If I was in charge of the FCA for a day, I would...

Accept we have to solve the simplified advice issue so it can become viable. There is far too much ivory tower thinking, with little thought to the unintended consequences.

Any advice for new advisers?

If it looks too good to be true, it probably is.

Passive managers will come out on top in robo-advice battle

Research suggests the fledgling robo-advice market will be dominated by just three to five providers as active managers struggle to turn a profit.

The research consultancy Finalytiq predicts start-up robo-advice firms will "fall by the way side" due to the high cost of acquiring clients and the strength of established passive fund managers.

In its paper, titled 'Laughing all the way to the bank', the firm says index fund managers are set to emerge as winners because they will be able to add on between 20 to 40bps to their index funds charges with only a small increase in fixed costs.

It predicts Fidelity - which is planning to launch its proposition Fidelity Go later this year - is most likely to lead the pack, with Vanguard and BlackRock slightly behind because of their lack of direct-to-consumer distribution.

In addition it says despite its strong brand and deep pockets, Hargreaves Lansdown might struggle to break into the market.

The report says: "Costs would have to be lower than its current proposition. Its propensity to push high-margin active funds, rather than low-cost passive, is a big disincentive to entering the robo-advice race."

Active managers in general will struggle and will need a "significant cultural shift" to cash in, says Finalytiq.

It says: "We don't see typical asset managers being in a position to cash-in by launching a robo-advice proposition, due to the low-margins and high client acquisition cost typically associated with robo-advice.

"The increasing intermediation we have seen in the last few years means that most asset managers have had little or on direct relationship with retail investors for many years. They have outsourced client services to advisers, platforms and pension providers.

"Many of them don't even know who the end investors in their own funds are and haven't engaged with investors for many years."

The firm adds the trend of established asset managers buying up robo-advice start-ups will continue as the cost of acquisition begins to bite.

In the UK Aberdeen Asset Management acquired Parmenion - which runs robo-adviser WealthHorizon - in September 2015, while in the US BlackRock snapped up FutureAdvisor last year and Invesco bought Jemstep at the start of 2016.

FinalytiQ says start-ups have evolved into "outsourced research and development labs" for traditional wealth managers.

It says: "The cost of client acquisition is one main reason why investment advice is so expensive and while robo-advice start-ups have improved efficiency in the areas of portfolio management, client reporting and the on-boarding process, it's costing them way more than they have anticipated to acquire clients."

Finalytiq founding director Abraham Okusanya says: "When the proposals from the Financial Advice Market Review get ironed out, you are likely to see robo-advice propositions growing in the marketplace but not many will be start-ups using new technology, it will be white-labelled propositions taken on by advice firms. There will be a flurry of launches and many of them will fall by the wayside."

Adviser view

Paul Stocks, director, Dobson and Hodge

Robo-advice is fine for simple things. The minute you get into tax planning or long -term projections, it becomes subjective. It gets messy where things are not straightforward and you become the conscience on the client's shoulder.

As soon as something complicated comes along I'm not sure how these systems will cope. With all the changes in areas like pensions how will a robo-adviser keep up?

US recession replaces China as fund managers' biggest fear

Fund managers' biggest fear is a US recession, replacing worries about the fallout from China, as managers are negative on both global growth and profits.

The latest Bank of America Merrill Lynch fund manager survey shows that the biggest tail risk facing markets is a US recession, with 27 per cent of managers selecting it. It replaces the fallout from China which was the top concern in the previous survey.

This was closely followed by emerging market or energy debt defaults, at 23 per cent.

For the first time since July 2012, fund managers' global growth and profit expectations have both turned negative.

Fund manager wariness on markets has led to the highest cash holdings since November 2001, at an average of 5.6 per cent.

Looking to the most crowded trades, fund managers are pouring into the US Dollar, shorting oil and emerging markets, and buying into tech giants Facebook, Amazon, Netflix and Google at 12 per cent.

The shifts in portfolio reflect fund managers' need for capital preservation, with moves into cash, utilities, bonds and telcomms and out of banks and equity markets.

Stephanie Flanders: Do market ructions signal bad news for the real economy?

Do markets know something investors do not? That has been the question posed over the past few weeks as they gyrated wildly despite economic indicators in the UK and other developed economies suggesting the recovery was broadly on track.

When markets have risen so far for so long, it is no surprise to see them become more skittish and investors become more downbeat about the returns they are likely to earn from here. That should not be a big concern for consumers, households or governments. The question is whether the market moves are actually signalling bad news coming down the track for the real economy.

The oil price and trouble in China have attracted the most investor attention. We do not think either of these pose an existential threat to the global recovery. But there is plenty of room for them to cause trouble, when expectations for growth in the developed world are still so mediocre.

Oil is a good example of this. The oil price usually falls as economies head into recession, and that is certainly what we saw in 2009. But the collapse in the price of energy we have seen over the past 18 months has not been accompanied by any fall in global energy demand.

What has changed fundamentally in this period is the supply side of the equation. The world is awash with cheap sources of energy from the US and elsewhere, and the big producers in Opec have neither the will nor the capacity to prevent that cheap energy from flooding the market.

The big jump in the oil price recently in response to suggestions Russia and Saudi Arabia might meet to discuss their oil production plans provided more evidence that it is the supply side of the equation driving the market right now, not any worrying fall in global demand.

As long as that is the case, most economists would stand by the view a further fall in the oil price since November is good news for the global economy as it puts more money into consumers' pockets.

But there are short-term consequences from cheaper oil that are not so positive. One is it is going to be even harder for central banks to get inflation back up towards target. The Bank of Japan surprised everyone recently by taking the official policy rate negative to -0.1 per cent. The European Central Bank is likely to take its policy rate even further into negative territory in the next few months as inflation expectations slide back once again.

Cheaper oil also inflicts big losses for companies and investors who have bet large on energy. Unfortunately for all of us, the energy sector is disproportionately represented in the main stockmarket indices in the US and Europe, especially the FTSE. That means the bad news for investors is a lot more visible and immediate than the extra spending by consumers.

That extra spending is happening, however, at least in the UK. We had some reassurance on that front in the latest GDP data. A roughly 2 per cent rate of growth is nothing to write home about and the manufacturing side of the economy is struggling against a backdrop of little or no growth in world trade. But there is little in the numbers to suggest the economy is about to grind to a halt. It is a similar story in the US and across the Channel.

You might say it was poetic justice that investors are now nursing losses, even as households and the broader economy move ahead. After all, we had plenty of years after the financial crisis when the reverse was true; when stock and bond prices marched upwards even as household incomes were falling in real terms and the economy was flat.

It would not be the end of the world if markets now treaded water for a couple of years while the economy continued to grow. With a bit of luck, that is exactly what we are about to see. But it is difficult for us to be completely relaxed when policymakers' room to respond to trouble is so much smaller than it was in 2008.

Stephanie Flanders is chief market strategist for Europe at J.P. Morgan Asset Management

FCA chair set to rack up record expenses bill

FCA chairman John Griffith-Jones is on track to file the largest expenses bill in the history of the regulator, figures have revealed.

In figures published today, the FCA showed that Griffith-Jones has racked up a mammoth ?29,738.69 in expenses after just three quarters of the year.

Griffith-Jones' total for the nine months starting April 2015 is exceeded only by former chief executive Martin Wheatley's bill for all of 2014/15, which saw the ex-boss claim ?33,017.59 for a full twelve months.

This means that if Griffith-Jones files more than ?3,279 in expenses for the three months to March 2016, he will reach the largest annual expense bill recorded by the FCA since its launch in 2013.

In the eleven quarters since the regulator's launch, Griffith-Jones has claimed an average of ?7,040.44 for each three-month period.

The chairman's bill is led by costs for foreign travel, which totals ?25,000 for the year-to-date.

By contrast, acting chief executive Tracey McDermott, who took over following Wheatley's departure last Summer, has recorded just ?5,539 in expenses claims for the year-to-date.

McDermott's bill is exceeded by that of FCA strategy and competition director Chris Woolard, who joined the regulator's board in the aftermath of Wheatley's exit. Woolard has claimed ?7,712, almost exclusively in the final three months of 2015.

Wheatley also filed ?4,638.91 in expenses between April 2015, and his departure in mid-July.

Wheatley's exit was confirmed on 17 July, by which point the outgoing boss had already claimed ?252.36 in expenses for the quarter.

An FCA spokeswoman says: "The FCA seeks to minimise the necessity of domestic and overseas travel. The FCA could not however fulfil its role as a financial regulator without regular meetings with other overseas regulators and visits to group head offices of the firms which it is responsible for in the UK.

"Furthermore, much of the financial rules which govern the United Kingdom are determined in committees which meet outside the UK and the attendance of FCA personnel at such meetings is essential if the FCA is to discharge its role effectively."

Investment fraud victims to get ?2.9m back after FCA intervention

Victims of a ?5.5m unregulated investment scam are set to lose almost half of their money after a judge ordered funds retrieved from two ringleaders be returned to investors.

Southwark Crown Court today ordered almost ?2.65m to be returned to around 100 people who fell victim to the scheme, which was established and operated by Alex Hope.

In addition, Hope has been hit with a ?166,696 confiscation order which he must pay in full in three months. If he doesn't, Hope will face a further 20 months in prison on top of the seven year sentence he was handed in January last year.

Today's order follows a similar order placed on Raj Von Badlo, Hope's co-defendant, who was ordered to pay ?99,819 at a hearing in December. This sum must also be paid in full within three month or he will be hit with a 15 month prison sentence on top of the two-year sentence he was given in January last year.

The FCA says investors will receive "in excess of ?2.9m" back following the ruling - just 55 per cent of the sums invested.

FCA director of enforcement and market enforcement Mark Steward says: "This is the largest sum returned to victims of crime following an FSA/FCA prosecution and is the result of quick action in the first instance to restrain the proceeds of Mr Hope's offending. The FCA will continue to work hard to ensure wrongdoers are held to account not only for their wrongdoing but also for its consequences, especially to victims, to the fullest extent possible."

The scam centred on Hope's claim he would trade investor's money successfully on the foreign exchange markets. In reality, only 12 per cent of the total money investors gave Hope was ever traded and when he did trade, "he lost almost all of the money in his trading accounts", according to the FCA.

Hope exaggerated his trading abilities and the returns he was making, and used doctored copies of statements from his trading account to mislead investors.

Von Badlo promoted Hope's scheme to a large group of investors. Over 75 investors gave ?4.29m to Hope as a result of Von Badlo's actions, the FCA says.

Hope used over ?2m of investors' money to fund his lifestyle. He spent over ?1m in a casino, over ?200,000 on designer watches and shoes, ?60,000 on foreign travel, and over ?600,000 in bars and nightclubs in London, Miami and New York.

Experts back Tyrie over FCA 'regulatory overload' concerns

Senior financial services experts have backed warnings from Treasury committee chairman Andrew Tyrie of "regulatory overload".

Speaking in a Westminster debate on the Financial Services Bill last week, Tyrie warned the FCA and the Bank of England risk being overwhelmed by the Government's legislative agenda and said regulators could be powerless to prevent the next financial crisis.

Tyrie said the Government's reforms - including the pension freedoms and the introduction next month of the senior managers regime - are placing "huge demands" on both the Bank and the FCA.

He said: "We may be close to the point of regulatory and supervisory overload. By that I mean the Government and Parliament could be raising expectations of what they can achieve to a point where they will never be perceived to have succeeded.

"We need to ask just how much national regulation can achieve in an open financial world. The truth is: perhaps not that much, and certainly less than many people think."

EY senior adviser Malcolm Kerr says: "The warning lights are definitely on amber, and not green at this point.

"If you think about it, the market has been saying the same things for quite a long time, and saying they have been finding it difficult to react to everything taking place.

"If that's now the case at the FCA level, it could create even more demands on firms like providers and advisers if the regulator needs to find a way to ease the pressure.

"The motives are entirely appropriate but that doesn't mean the level of regulation has to be constantly increasing.

"Maybe there are more efficient ways of regulating the market, but it does appear at the moment more regulation doesn't necessarily equal better regulation."

Former FCA board member Mick McAteer says the increased size and complexity of the UK's financial services market makes it harder to regulate than ever before, while expectations of the regulator remain unadjusted.

He says: "There have been major successes in the post-crisis era. It's silly to argue that there hasn't been a big improvement, and the regulator has become more effective as well.

"But they will never meet expectations because people want it to be perfect and don't understand how complex the reality really is.

"You can maybe have perfect regulation if you throw 10 times the amount of resources at it, but I'm not necessarily sure that is what people want, and the FCA might well then be accused of overregulating."

Expert view

I have a lot of sympathy for the workload that the FCA has on, and the same applies to the amount of work required of regulated firms.

Regulators and the Government, and indeed the EU commission, need to stop and think about the amount of change being imposed and the compliance costs associated with that.

For example, Mifid II is sucking up a lot of time and resource from firms and regulators, despite being a matter that is largely out of their control, while there is also a lot of UK change for them to address.

I do not think that workload has ever been as intense as it is at the moment.

And it comes about because we are still dealing with regulations and measures brought about as a consequence of the financial crisis, while at the same time looking at new things linked to a more consumer-focused approach.

One alternative would be to explore a return to principles-based regulation, which is something the FSA looked at, but it fundamentally did not work properly. It was too generic and we need to keep things prescriptive, so all sides need to make sure the speed of change is thought through.

Tim Dolan is partner at KWM

Adviser view

Pete Matthew, managing director, Jacksons Wealth Management

The FCA faces such a varied workload and there is so many different elements to financial services, from massive multinational corporates dealing in multiple jurisdictions and currencies to little old me down in Penzance.

The only way of dealing with that is more people, and that is far from a solution that anyone in the industry would be happy with. So maybe we need to talk about regulating products instead, and self-regulatory aspects for some of the safer parts of the financial services community, because I do not see how any one body can deal with such a broad range of different topics.

German robo-adviser lands in the UK

German robo-advice firm Scalable Capital has been granted FCA approval to operate discretionary investment management services in the UK.

Using ETF-based investment portfolios meeting a range of risk profiles, Scalable Capital will reweight the underlying asset allocation based on forward-looking projections and an assessment of ongoing market developments.

Charges will be 0.75 per cent of the average invested capital, including account management and custody fees, as well as all trading costs for portfolio transactions.

Portfolios will be built from a universe of 1,500 ETFs. They are currently constructed using 14 products, which track indices across the four main asset classes - equities, bonds, property and commodities.

Investors can join the waiting list on the Scalable Capital website before the service launches later in 2016. The firm has been operating in Germany since 2015.

Leading the UK team are former Goldman Sachs trading division executive director Adam French and Dr Ella Rabener, the former founder and chief executive of Westwing Russia and associate partner at McKinsey & Company.

Adam French, co-founder and managing director of Scalable Capital says: "Our unique and dynamic risk management technology takes the digital investment industry to the next level. Our technology not only provides cost-efficient access to capital markets products, but also offers UK retail investors a more sophisticated investment methodology."

Ex-Mortgages PLC boss sets up new lender

Former Mortgages PLC chief executive David Pothecary is setting up a new company called The Mortgage Lender with several former colleagues.

The new company will be a specialist lender.

The Bristol-based firm has not officially launched, but Companies House documents confirm that Pothecary, currently chairman at RPS Capital Partners, is its principal.

The Mortgage Lender has four directors: Pothecary, former Mortgages PLC operations director Hugh Meechan, P&S Thomson Consultancy director Peter Thomson and The Business Lender director Alex Cameron.

Trevor Pothecary is the main shareholder in The Mortgage Lender, followed by Maureen Pothecary. The two own 600,000 of the firm's 975,000 shares between them.

Other shareholders include Meechan, Thomson and Cameron, as well as Pothecary's former Mortgages PLC colleagues Scott Callaghan, David Newman, Ailsa Smith, Stephen Crawford, Claire Duncan and Susan McCallum.

Further shareholders include Tom Tredwell, who works alongside Pothecary and Newman at RPS, and Derek Brown.

Mortgages PLC was sold to Japanese-financed Majestic Acquisitions in January 2002 in a deal thought to be worth close to ?40m.

Majestic then sold its stake in Mortgages PLC to investment bank Merill Lynch in November 2004.

Pothecary did not respond to requests for comment.

Think-tank: Govt should ignore flat rate and abolish tax free cash

George Osborne should resist moving to a "misguided" flat rate of pension tax relief and instead cut or abolish tax free cash, an influential think-tanks says.

In recent weeks it has emerged the Treasury's preferred option for a new system is the flat rate of relief championed by much of the industry.

But the Institute of Economic Affairs says a flat rate would be "incredibly complex" and detach pensions taxation from "any reasonable economic principles".

It says the current system has a sound logic as those on high incomes receive more relief because they pay more tax over their lifetimes.

The think-tank adds HMRC would need to introduce new complicated rules to stop employees working around a flat rate.

It favours retaining both the annual and lifetime allowance but removing the 25 per cent tax-free lump.

It says: "The tax-free lump sum allows contributions to sidestep the tax system completely - in effect creating an EEE regime for that quarter of the pension pot. This then necessitates a huge volume of tax regulation to prevent perceived abuse."

Lowering or abolishing the lump sum would "hugely reduce the 'benefits' that flow to the rich from tax relief", the IEA says.

It also takes aim at pension Isa champion Centre for Policy Studies' Michael Johnson and others' assertions of the cost of tax relief. It says highlighting the gross cost of tax relief is "totally wrong".

It says: "The reports of the costs of pension tax relief we often hear about are not judged against sensible counterfactuals and vastly overstate the cost relative to a neutral system of taxation."

Goldman Sachs insurer eyes Aegon annuity book

Pension insurer Rothesay Life is in advanced talks to buy an ?8bn annuity book from Aegon.

Sky News reports the insurer - owned by Goldman Sachs - has entered exclusive talks to purchase the annuity assets from Dutch-owned Aegon.

In September 2015 an internal memo responding to speculation the whole firm was for sale reaffirmed the provider's commitment to the UK but revealed it was reviewing its annuity portfolio.

The memo said: "We have built a market leading platform which continues to be the fastest growing platform both by percentage and in terms of asset growth.

"We have clear differentiation in our proposition "to and through" retirement and this is supported by innovative products such as Secure Retirement Income which is the only guaranteed product available on platform today.

"We will continue to grow our platform both organically and through acquisition."

Last week, Money Marketing revealed Aegon has reached a verbal agreement with Legal & General to buy its platform Cofunds. Around 30 sales staff working on its legacy business are also expected to leave as part of a restructuring of resources towards its platform division.

Rothesay Life declined to comment.

Phil Young: Under the FCA's all-seeing eye

The concept of the panopticon – a prison with a single watchtower where inmates do not know if and when they are watched so must always assume they are – was adopted by French thinker Michel Foucault to explain how all relationships of power function.

Imagery aside, this is not necessarily a bad thing. Maintaining even the most basic form of social order requires us to assume we act and think under the gaze of some greater authority: if not God, then the Government, the police, a schoolteacher or our parents. Somewhat unwittingly, the FCA has become the panopticon for financial advisers. Not simply as a regulator but in terms of how advisers acquire their own subjectivity, which is far more interesting.

A couple of years back, an adviser summed this up perfectly when he said to me: “I’ve accepted that I run a franchise of the FCA. I own the business but pay it a fee for my licence and it controls how I market myself, how I charge and how I advise.”

Advice has always been shaped by something other than advisers. When I started out, firms were still moving from FIMBRA to PIA and it was life companies that fulfilled the role of panopticon, handing out jobs and training via its sales force, then a business model with commission and punishment through clawback. When the role of the life company dwindled, it was platforms and fund managers that handed advisers a replacement business model and charging structure in the form of ad valorem charging.

The move from PIA to FSA, which culminated in the RDR, cemented the position of the regulator as panopticon, defining what good and bad advice would look like, and what good and bad advisers looked like. This has been achieved despite a reduction in the amount of direct contact a small advice firm will have with the regulator. Examples of how it has been achieved with so few foot soldiers are as follows:

Requests for information: We have no real understanding about what happens to the huge amounts of information sent to the FCA by all parts of the industry. We suspect it cannot all be used or acted on but have no idea which parts in particular or when it is ignored.

Good and bad practice: Messrs Findlay, Gould and Percival are excellent presenters. Rory is now the single biggest draw as a speaker for any adviser event, including paid-for events, not just FCA ones. There is also constant demand for more guidance, and good and bad practice examples. Advisers are willingly defined by the FCA and want more instruction.

Interim levies: Like a thunderbolt from Zeus, interim Financial Services Compensation Scheme levies are received by advisers as severe, unpredictable and unjust. A reminder that nobody is invisible and everyone can be called to account at any time.

Information on fines: A steady stream of information about fines and bans comes direct from the regulator and is spread via the trade press.

I do not think for a second any of this was intended. Percival himself was quoted saying he would prefer advisers to think about doing the right thing by their clients instead of worrying about what the regulator thought. However, this is extremely difficult if advisers derive much of their identity from the FCA, not simply their regulatory licence. What would stand in its place?

Advisory businesses are typically small, so there is little competition for the FCA as panopticon. Less so for large financial institutions such as banks, insurance companies and asset managers. Senior management at big businesses all work under the gaze of the share price, which is the sole judge of their abilities. Moving the share price upwards is the only true objective and bonuses are paid in shares. Roles are sufficiently specialised and compartmentalised to provide for dedicated risk personnel to deal with the regulator, so that others can work without the distraction of operating under the regulatory gaze. In this context, the FCA can lose its day-to-day power over senior management, which is limited to occasional set-piece meetings. Perhaps this is the ‘culture’ that concerns regulators: too much dependency from advisers, too little from institutions?

Questions are being asked on what we as a country want the regulatory remit to be, its function and purpose, and what budgetary constraints it should operate within. Rumours about a lack of independence and clear direction without a chief executive weaken its position and need to be addressed.

The FCA’s modern role as setter, rather than regulator, of culture among adviser firms may be too subtle to be noticed. If its role or reputation is diminished further, so too might its effectiveness be.

Phil Young is managing director at Threesixty

Keith Richards: When is commission not commission?

The advice profession has evolved post-RDR and continues to gain positive recognition for the key role it plays. As a professional body we would not be in favour of a return to commission of old and this view is clearly shared by many across the advice sector. I equally doubt commission would appeal to most providers, given how capital intense and uneconomical it was.

So why, all of a sudden, is it back on the agenda? Have we simply misinterpreted the FCA’s recent comments on the matter and the key underlying reason why it is open to consider advice fee options?

Three years after RDR forced a change to fee-based advice (or, to be more specific, abolished the factoring of commission into investment products) it is permissible for transparent adviser fees to be facilitated via the provider or platform as a client option.

So why is it that the Financial Advice Market Review is giving rise to speculation that some form of commission may be reintroduced? Quite simply, it is not. However, the FCA is open to exploring options to recover a transparent advice fee from regular premiums, in particular for consumers who want to save but may be put off seeking advice because of up-front fees.

In order to best serve the interests of a wider segment of consumers, the review is considering the introduction of a lower cost, “simplified” regulated advice solution, which will also include the option for advice fees to be recovered over an agreed period of time from the premium – possibly called a “client agreed advice fee”.

Vertically integrated firms are already well-placed to operate such a system in a post-RDR environment, as recovery is easier to administer, but development to improve consumer options and access should be open to all models.

The inclusion of transparent CAAF would increase the options available for the public to pay for advice, reduce barriers to engagement and be capable of working equally well for full advice. More importantly, it can be implemented today, does not conflict with RDR Conduct of Business rules and would not therefore be commission.

Keith Richards is chief executive of the Personal Finance Society

Tony Wickenden: Key pension changes from the 2016 Finance Bill

And so, in my journey through the sometimes arid landscape of the draft clauses for the Finance Bill 2016 most relevant to financial planners, we arrive at the oasis of pensions. As in my previous articles in this series, I will break my consideration down into the headings used in the HM Revenue & Customs overview of the draft legislation for consultation.

Pensions

Lifetime allowance

As announced and confirmed in last year’s Budgets, legislation will be introduced in the Finance Bill 2016 to reduce the standard lifetime allowance to £1m for the 2016/2017 tax year onwards and provide that it will be increased annually in line with the consumer price index from 2018/2019 onwards.

Transitional protection (Fixed Protection 2016 and Individual Protection 2016) will be introduced to provide individuals with pension savings of up to £1.25m protection from retrospective taxation, subject to certain conditions. Changes are also being made to the Finance Act 2004 to ensure individuals who have primary or enhanced protection with no lump sum protection receive the pension commencement lump sum intended by the legislation.

Advisers must engage with all clients likely to be affected to consider what, if any, action to take when the time is right.

Pension tax relief consultation

At last year’s summer Budget, the Government launched a consultation on the system of pension tax relief to gather evidence and views on whether the current regime incentivises pension saving. It received several hundred responses to that consultation and is considering the options for reform carefully. It will publish its response at March’s Budget.

This is perhaps the biggest potential story of them all. The £30bn-plus net cost of pension tax relief, and the fact the main beneficiaries of it are higher and additional rate taxpayers, means most believe that some (probably fundamental) change is inevitable. The Centre for Policy Studies favours a difficult transition to a taxed-exempt-exempt based regime, essentially founded on “special purpose” Isas. A stronger candidate may be a move to a form of flat rate relief, which would mean more incentive for basic rate taxpayers and less for higher and additional rate taxpayers.

All very well but, with the increasing numbers of basic rate taxpayers contributing to pensions through automatic enrolment, a flat rate relief higher than the current basic rate will no doubt be factored into any decision-making.

Given the very public nature of this most important of likely future pension changes, advisers can very legitimately contact their higher and additional rate tax paying clients to review what, if any, action should be taken in this tax year.

This discussion will no doubt also take account of any action that might need to be taken in the light of the tapering annual allowance from 6 April and this year’s transitional pension input period alignment. Plenty of pensions planning thinking required for Q1, then.

Pensions tax: Bridging pensions

Following the introduction of a single tier pension from 6 April, legislation will be introduced in the Finance Bill 2016 to allow the pension tax rules on bridging pensions to be aligned with Department for Work and Pensions legislation.

Dependants scheme pensions

Also announced at Autumn Statement, legislation will be introduced in the Finance Bill 2016 to reduce significantly the number of calculations that need to take place to determine whether a dependants’ scheme pension exceeds the authorised limit. The changes will take effect from 6 April.

Miscellaneous

Isas: tax advantages following the death of an account holder

Legislation will be introduced in the Finance Bill 2016 to provide for changes to the Isa regulations that will allow the Isa savings of a deceased investor to continue to benefit from tax advantages during the administration of their estate. Draft regulations will be published this year following technical consultation with Isa providers.

Pensions: Secondary annuities market

Legislation is to be introduced in the Finance Bill 2017 to remove the current pensions tax restrictions on individuals seeking to sell their right to future annuity income. This will be another area where advisers will need to be informed – and cautious. No doubt the FCA will have a very strong point of view on how this market should operate.

Reform to tax treatment of non-domiciled individuals

The Government will publish its response to the consultation on this subject early this year together with drafts of any necessary amendments to legislation (including transitional provisions).

Any advisers with non-domiciled clients need to be continually vigilant for changes to the relevant taxation rules and ensure they factor them into their planning, securing specialist advice where appropriate.

I will continue my look at the draft clauses relevant for advisers next week.

Tony Wickenden is joint managing director at Technical Connection

Platform focus: Can Novia continue to steal a march on its rivals?

Novia has stolen a march on many of its peers by forging ahead with bringing discretionary fund managers onto its platform. It offers access to a wide range of DFMs: currently 60 and counting. In this week’s platform focus, we take a look at why it has been so successful in attracting DFMs and what steps it is taking to realise chief executive Bill Vasilieff’s ambition of offering the best investor experience in the market.

Novia’s assets under administration grew by 25 per cent year-on-year (as at Q3 2015) although from a smaller base. It now stands at £3.8bn.

The feedback we hear from advisers is that Novia is easy to work with and gets some important things right. For example, those looking for access to a wide range of on-platform model portfolios should be attracted by the choice available on Novia.

DFMs we have spoken to find the platform easy to work with. They say it makes it easy for them to get paid and its sales team works with them to help attract new business into their model portfolios. Novia also operates its own DFM, Copia Capital Management.

The wide range of collectives, asset classes and instruments available on-platform also makes Novia well suited to facilitating DFMs’ model portfolios. The platform tells us it has seen ETF use grow rapidly, albeit from a small base. It has just announced a deal with Winterflood to use its new trading system to improve access to ETFs for its users. Winterflood’s automated service trades can cost as little as £1 (although advisers should also consider the spread between bid and offer prices for small trades).

Novia has also been investing in updates to its tools and technology, with a move to version 12 of the core administration system provided by GBST coming up.

Our user scores for the platform’s web usability, usefulness of online tools and ease of doing business have been dipping, so it is encouraging to see it is taking action to address this.

There is a new look Investor Zone, which looks clean with clear and simple graphics and charts. It is now tablet friendly and provides e-delivery of half-yearly statements. Previous statements will also be archived online. The next phase is to put contract notes online as well. Advisers tell us they want paperless systems, so it is good to see Novia taking note. We have been impressed by the updates to the platform’s Model Portfolio Manager, a tool that can be used by advisers and DFMs alike. Novia trains all adviser firms to use Model Portfolio Manager, as it enables rebalancing. Advisers can link clients to models and DFMs can load specific models against specific advisers. It also prohibits using net funds if a gross fund is available on-platform, ensuring the most tax efficient route is taken. We were particularly taken with its database of corporate actions, which are automatically flagged and therefore helpful for advisers needing to notify clients.

Novia’s book price ranges from a modest 0.15 per cent for portfolios of £1m-plus, to a punchy 0.5 per cent for portfolios of up to £250,000. With average platform charges settling at around 0.35 per cent this suggests to us Novia is focused on attracting investors with portfolios in excess of £250,000: a rarefied pool indeed. Novia must articulate its value to these investors and their advisers. New business is a clear focus and this group of investors is sought after. Other platforms will be circling.

Chief executive Bill Vasilieff tells us his ambition is to make Novia’s investor experience the best in the market. Its recent investment in technology combined with its comprehensive range of funds and instruments shows it is making the right moves. However, some of the advantages Novia has over less-nimble rivals will fade in time.

The challenge will be to continue to innovate to be able to maintain its lead.

Miranda Seath is senior researcher at Platforum