A market outlook from PPMG | May 2016

Mike Coop, Head of Multi-Asset Portfolio Management at the Prudential Portfolio Management Group, provides his outlook for the world economy and markets. In this short interview with Asset TV, Mike discusses the impact of China as a financial superpower, market uncertainty and the growth opportunities across a diversified portfolio of assets.

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High Court ruling could open the floodgates to pension scammers

Until recently, pension providers had wider powers to refuse to make a transfer if they had concerns about where it was going. This acted as a major line of defence in preventing pension scammers from accessing individual's pensions and savings.

However earlier this year, the High Court overturned a Pensions Ombudsman decision that sided with Royal London who refused a suspicious £8,000 transfer to a small self-administered pension scheme (SSAS) in 2014. There is now serious concern as this ruling gives pension savers the right to transfer in certain circumstances, even where pension providers have reservations, opening the floodgates for scammers to prey on the unsuspecting.

Jonathan Watts-Lay, Director, WEALTH at work, a leading provider of financial education in the workplace, supported by guidance and advice, discusses how employees could avoid losing their pension to scams and fraudsters;

“This ruling means that pension providers are now in a very difficult position as they no longer have the right to refuse certain transfers, even if they consider them a risk. Employees must be aware that there are scammers out there who will use legal loopholes like this as a means to an end, and individuals should therefore look out for the warning signs.

After all a recent study from Citizens Advice found that nearly 90% of people would fail to spot the common warning signs of a pensions scam.”

He adds, “The issue is that scams don't looks like scams. They look and sound legitimate, with professional looking websites and literature, which is why people are hoodwinked. In our financial education seminars, adverts from organisations that are 'too good to be true' are shown to prove how hard they can be to spot.

Some scammers will approach it as an investment or business opportunity. For example, there have been recent reports of fraudsters targeting pension savers in a new scam offering opportunities to invest in parking spaces, promising attractive pay-outs which never come to fruition.”

Watts-Lay warns of the dangers, “Remember, if it looks too good to be true, it probably is. Legitimate investment companies are also very unlikely to cold call. The people that run pension scams are clever and often get hold of personal details not just about an individual, but their local area and interests. They are often very knowledgeable and incredibly friendly, which can catch even the savviest people off guard.

Genuine advisers and investment opportunities will never rush someone to make a decision. Employees should be very wary if documents are urgently couriered to them for signing and if they are being encouraged to take out a large lump sum, or to transfer their pension money quickly.”

He continues, “They should watch out for promises of being able to release their pension early, as they normally can only be accessed after age 55.

Scammers will also downplay the risks to an individual's money and use confusing legal jargon, offering unusually high 'guaranteed returns'. Scam buzz words for employees to be vigilant of include, 'legal loophole', 'free', 'time limited', 'no risk' and 'one-off and unique investments'.”

Finally Watts-Lay concludes, “The most important rule employees should remember is that whatever investment they are planning to make, it is important to check that the company is registered with the Financial Conduct Authority (FCA) first at https://register.fca.org.uk/. If they aren't listed then there will be no place to go if the investment turns out to be a scam. Also, employees could further protect themselves by checking the FCA's list of known scammers at www.scamsmart.fca.org.uk before investing.”

How to solve the self-employed savings crisis

Self-employment used to be the preserve of those in certain industries but now people in all walks of life, from childcare to technology, are working for themselves. A recent report by the Federation of Small Businesses found 4.6 million people – around 15 per cent of the workforce – are now self-employed.

But these people are not covered by automatic enrolment and many are not saving adequately for their retirement – if at all. Indeed, less than a third of those surveyed by the Federation of Small Businesses said they were saving into a private pension, while 15 per cent did not seem to be saving anything at all. The remainder are relying on other savings and investments, property and even the sale of their business to fund it.

One of the obstacles in saving for a pension when self-employed is that income levels fluctuate. It is often short-term needs that come first, making it difficult to save regularly for the longer term. But the self-employed still need money for their retirement. So what can be done to ensure they are better prepared?

Understanding the problems

Unlike employees who are covered by auto-enrolment, the self-employed do not have anyone encouraging them to contribute to a pension. They are not compelled to make contributions of their own and neither do they benefit from employer contributions, so many risk ending up with very little come retirement.

Boring Money founder and managing director Holly Mackay says: “There can be real advantages in the self-employed making contributions to a pension. Apart from the usual tax reliefs, it can push people below the higher-rate tax thresholds or enable them to retain other benefits. Child benefit, for example, stops at an income of £50,000.”

AFH group head of advice Austin Broad says encouraging the self-employed to save for retirement is complex as, on the flip side of perks such as better a work/life balance and working independence, are uncertain cash flows and a taxation system that works in arrears.

He believes educating the self-employed about the importance of retirement saving is the way forward, as overhauling the tax system to cater for a pension saving system could be highly complex, potentially making it more difficult to become self-employed.

A mandatory solution?

For Royal London director of policy Steve Webb, relying on things like advertising, incentives, awareness-raising and better products is unlikely to boost retirement saving among the self-employed, just as they did not really deliver for employees. He favours an increase in Class 4 National Insurance contributions paid by the self-employed out of their profits to fund retirement savings.

He says: “The only real solution is a variant on auto-enrolment: a big nudge using the Class 4 NICs system. This has the merit that it is sensitive to how profitable the business is at any point in time. If someone has a good year and high profits, then their Class 4 bill goes up and more of this can go into a pension, whereas less goes in during a lean period.”

However, not all agree Webb's idea is workable. Aegon head of pensions Kate Smith, for example, fears the self-employed might see it as just another tax rise, while Portal Financial managing director Jamie Smith-Thompson also has doubts.

“Most self-employed people are cash hungry and the current government is not interested in building a large department of civil servants, which it would need to for this to work. I don't think this will come in under the current regime,” he says.

But Sanlam UK head of employee benefits Elliot Silk thinks Webb's idea does have legs.

“People will have got used to paying Class 4 contributions,” he says. “We also need to put the onus on accountants and business consultants to speak to their clients about retirement saving. Accountants have woken up to retirement and pension saving through auto-enrolment, so they have a better grasp of pensions.”

The Lifetime Isa

Some in the industry think the Lifetime Isa will help self-employed people save. However, others feel that its maximum age limit of 40 and the £4,000 a year limit to contributions make it unsuitable, along with the restrictions placed on accessing it before 60.

The Association of Independent Professionals and the Self Employed deputy director of policy Andy Chamberlain says: “We believe the Lifetime Isa should be extended to allow for larger maximum annual payments and should be made available for those closer to retirement. The self-employed should be allowed to withdraw a maximum amount without losing their bonus or interest so they have security as their income fluctuates.”

A pension for the self-employed

There are calls for Nest to develop a bespoke default pension for the self-employed, with contributions benefiting from tax relief to incentivise saving. The Tax Incentivised Savings Association strategy policy director Adrian Boulding says: “We need a separate self-employed pension to reflect the distinct characteristics of this growing segment of UK workforce. Self-employed people need a low risk pension, because their business is likely to be more risky than that of employed people. They may need a separate default fund with lower volatility.”

Boulding adds that the self-employed need the ability to access their pension pot at short notice to provide additional working capital. “As they don't benefit from an employer contribution, or from the tax relief and NI relief employer contributions attract, they need an additional incentive from the government on top of the normal pensions tax relief,” he says.

Advice and individual needs

St James's Place divisional director for pensions and consultancy Ian Price points out that not all self-employed people have the same retirement needs.

“There is a group of people for whom self-employment is a second career. They may have a pension from their previous employment and self-employment is way of doing what they want or earning some extra money,” he says.

The retirement needs of this group differ from those Price calls the “pure” self-employed. He believes pure self-employed people who have set up their own business and have no previous workplace pensions should work towards building pension contributions into their cost base.

“The last thing on your mind when setting up a business is a pension, because you're making sure the business is successful and that your income is more than your outgoings. But as the business matures part of the planning should be looking at pension contributions as part of the turnover,” he says.

Smith-Thompson says: “The self-employed have been left to fend for themselves. In years gone by you had the man from the Pru knocking on your door to sell you a personal pension but because of tighter regulation we no longer have that. So it's a bit more difficult for the self-employed; they are not given a lot of direction. Part of the role of the adviser is to really push what a client needs rather than what they want.”

Billy Mackay: My stag do and pension exit fees

Newcastle 2001 – my stag trip was an interesting affair. The best man thought it would be funny to see how many strangers he could handcuff me to.  Not all at the same time mind you – he had some degree of decency.

It was a night that also tested my alcohol capacity to the limit. Today's proposal from the FCA to introduce a 1 per cent cap on early exit penalties reminded me of some of the emotions I experienced that weekend.

The 1 per cent cap is certainly a step in the right direction, but it still means that many people will be handcuffed to something that is of little use to their current circumstances. Rather like consuming 10 pints of lager, it's a situation that leaves you with the disconcerting sense of taking one step forwards and several steps back.

Cards on the table – a cap is clearly better than nothing.  But why 1 per cent, and why just when someone wants to access pension freedoms? I can't see how any of it can be rationalised alongside a 5 per cent early exit penalty on the new Lifetime Isa.

The justification given for early exit penalties is that they cover the initial costs incurred by the provider when setting up the policy, and that these are spread across the agreed life of the contract. Having worked for companies that marketed those products, I can assure you that elements of this are open to challenge.

I have said many times that you must question whether it is reasonable to still be collecting charges for events that may have happened around a quarter of a century ago. I've also questioned whether these exit penalties really do relate exclusively to initial set up costs, or whether they are actually about ongoing provider profitability.

In reality, the cost was baked into the contract many years ago to ensure the product was profitable over a range of customer circumstances.

The world has moved on significantly since these products were designed. Back then it was the norm to have a fixed retirement date that was usually fairly closely aligned with the state retirement age. People worked until around then and the theory is they could retire to put their feet up.

Today, life is much more flexible. The concept of a standard retirement age has gone, yet people are still locked into contracts based on a decision they made about their retirement date 30 years ago.

Thinking back to Newcastle in 2001, I'm sure some of the folks who reluctantly consented to being handcuffed to a jovial – if slightly tipsy – stag early on in the night could sort of see the funny side. If they'd still been attached to the gibbering, useless wreck I became four hours later, their patience would almost certainly have evaporated. It might have been humorous but it just wouldn't have been fair.

Nowadays, of course, we also have pension freedoms, which have changed the concept of how you can access your pension savings beyond all recognition from five years ago, let alone 30.

So, regulation to address these inconsistencies is welcome, but why 1 per cent?

The challenge of a percentage-based charge is it introduces an element of cross subsidy. The work involved in arranging a transfer has a cost. What you run the risk of is larger cases cross subsidising smaller cases.

We have seen instances in other areas of the market where cross subsidies of charges have been frowned upon by the regulator. This could be addressed by including a monetary minimum and maximum charge but, better still, the cap could be set at 0 per cent for all policies.

The 1 per cent also flies in the face of the new Lifetime Isa proposals so publicly heralded by the Chancellor. The irony and inconsistency will not escape many in the industry. On the one hand we have a proposal to set early exit fees on pensions at 1 per cent, and at exactly the same time we have a proposal to introduce an early exit penalty on Lifetime ISAs of 5 per cent.

Like my ill-advised trip to the Tuxedo Princess (a bar on a boat), this was undoubtedly a backwards step.

Any charge simply to access your own money is unfair. Charges should relate clearly to the work providers need to carry out for the customer today, and should be commensurate with that work. It is then obvious what the customer is paying the charge for, and whether the charge is fair and reasonable.

In addition, it appears that the proposed cap will only apply to contracts that are preventing people from exercising the pension freedoms. This feels too restrictive. If we are going to address the issue of early access fees properly, the new rules should be applied to any contract that has an exit fee based on an artificial retirement or maturity date, particularly as these dates were often agreed decades ago when the individual had no clue about when they were actually going to retire. Leaving it structured around access to the pension freedoms will leave many individuals handcuffed against their will.

Anyone in an old private pension scheme that is likely to be expensive and inflexible compared to newer schemes should be able to transfer without penalty, regardless of their age. A reasonable fee for processing the transfer is fine, but a percentage charge simply for accessing the fund and based on its size is stopping people from making the most of their pension savings.

Today's paper from the FCA is progress, but taking bigger steps now could consign the unwanted hangover of early exit penalties to the scrapheap for good.

And believe me, I know all about unwanted hangovers.

Billy Mackay is marketing director at AJ Bell.

Getting the most out of CPD – and making it personal

Continuous professional development should be viewed as something more than just a box-ticking exercise undertaken to renew a statement of professional standing. It can be used to genuinely benefit development, both professionally and personally. The key to really unlocking the value of CPD is to make it personal. What are your development needs? What are the needs of your business?

When undertaken properly, development is a machine of many cogs, and one that is vitally important but all too often neglected is the personal development plan. The major cause of this reticence is a lack of understanding about what form this plan should take and what should be included. We know it needs to meet the criteria of CPD given by the regulator (set out in full below) but, just as importantly, it needs to be personal and relevant to your needs.

So, where should you start? I would recommend you go back to basics and run an analysis of where your development needs sit. Segment your analysis into broad sections: technical knowledge, conduct and ethics, business development, practice management and personal development.

Although everyone will have emphasis in certain areas over others, a comprehensive CPD framework should be reasonably balanced across the whole spectrum, with areas of focus falling into each of those headers. Once you have ranked these areas of interest in priority order, you will have the foundations of your personal development plan.

Bear in mind there are a number of criteria produced by the FCA a learning activity needs to fulfil in order to qualify as CPD. It should:

• Be relevant to the retail investment adviser's current role and any anticipated changes to that role


• Maintain the retail investment adviser's knowledge by reference to current qualification standards relevant to the retail investment adviser's role


• Contribute to the retail investment adviser's professional skill and knowledge


• Address any identified gaps in the retail investment adviser's technical knowledge


• Have written learning objectives based on learning needs and a documented learning outcome


• Be measurable and capable of being independently verified by an accredited body


• The FCA also specifies that structured CPD must take 30 minutes or more to complete.

With this criteria as a base, you can now begin to look at the range of CPD opportunities available, balancing them against the prioritised list of subject areas you have already created. It goes without saying your personal development plan is a living document and will continue to evolve throughout the year. However, building a structure of the areas you are going to cover and where/how you are going to access that learning activity will be valuable, even if you do not stick to it doggedly.

I would suggest you consider the below points for any CPD activity you undertake:

• Why did you select this activity?


• Does it fit in with your personal development plan? How is it linked to your pre-selected learning objectives?


• How does it contribute to your knowledge and skill set?


• In what way can you put this theoretical learning into practical use in your firm?

If you are unable to answer any of the questions above, it is likely the activity you are looking at is not relevant to your ongoing development in a meaningful way.

Thinking about and compiling your personal development plan is not a quick and easy exercise, and some advisers will still believe it is too big an effort to prove worthwhile.

But 35 hours of CPD are going to need to be taken and documented anyway – would it not make sense to spend a little more time preparing properly to end up with a plan that meets your needs and goals?

The real key to this is producing and following a plan that is tailored entirely to meet your individual needs. There is no shortage of opportunities to gain CPD – particularly structured CPD – out there in the market.

You should use the opportunities available to you to help develop your skills, your knowledge,  your business and, ultimately, the service and standards you offer to your clients.

Tom Hegarty is managing director of the New Model Business Academy

Danby Bloch: Making the most of tax-free income for clients

Valuable opportunities have opened up recently for advisers to help clients save tax on their investments. The new elements are the personal savings allowance introduced this year and the nil per cent starting rate band for savings income that came in just over a year ago. Many people will now be able to have up to £17,000 of income tax-free. If they also receive dividends, up to £22,000 of their income could be tax-free as a result of the new £5,000 dividend allowance. But it is important to understand how the rules work.

For these purposes there are essentially three main categories of income: savings income, non savings income and dividends. Savings income consists of interest on deposits in banks and building societies but also includes profits on certain life policies (offshore bonds are most relevant), interest distributions from Oeics and other collectives (but not dividends), income from taxable interest-bearing National Savings and Investments products and the interest element of purchased life annuities.

Non-savings income for these purposes includes pretty much all other income apart from dividends. For most people that essentially means earnings, pension income (private and state) and rent. Then there are dividends, where the tax position has changed a lot from this April.

The different types of income are taxed in a particular order of priority and that order can make a big difference to the amount of income tax payable. The priority order for income tax is earnings and other non-savings income first, then savings income and then dividends.

The starting rate of tax is an odd structure but it can be valuable and important, so bear with it. The maximum 0 per cent starting rate band is £5,000 and is given in full if the individual's non savings income is less than the personal allowance of £11,000. However, it will not be available at all if the individual's non-savings income exceeds the personal allowance plus the £5,000 starting rate band – that is, an aggregate of £16,000.

Additional complication

So if the client has a conveniently neat amount of earnings/pension amounting to only £11,000, they could receive their £5,000 of savings income free of income tax. If their non-savings income were £12,000, they could only benefit from £4,000 of the 0 per cent starting rate income band. And if their non-savings income exceeded £16,000, they would get no benefit at all from the 0 per cent starting rate band.

Dividend income does not affect a person's entitlement to the savings income starting rate band because it sits on top of the savings income and is taxed after it under the priority rules. So our client could have £11,000 of earnings, £5,000 of savings income and thousands of pounds of dividend income but she would still qualify for the nil starting rate band and that would mean her first £5,000 of savings income would continue to be taxed at nil.

That is not all there is to the additional complication of the new savings allowance. For basic rate taxpayers, the allowance means £1,000 of savings income is tax-free. If they happen to slip by a pound into the higher rate band, only £500 of savings income will be tax-free.

In other words, the value of the tax relief is potentially the same whether you are a 20 per cent taxpayer or a 40 per cent taxpayer. But if you have enough income to push you into the 45 per cent tax bracket – even by just a pound – you lose the allowance altogether. From HM Revenue and Customs' point of view, it will not have to chase up most taxpayers for tiny amounts of tax on deposit interest. Basic rate tax is no longer deducted at source from interest on bank and building society accounts, etc.

It is hard to say how long this will all last. It could be years or it might disappear as quickly as it came. A general point many experts are now making is that clients need to diversify their different sources of income and capital gains into a range of tax wrappers. So where are the planning opportunities?

1. Some couples might find that one of them has a relatively low level of earnings/pensions and the lower income partner should therefore hold the assets that generate the savings income to qualify for the extra tax-free cashflow.


2. Non-UK life policies look like attractive ways to generate savings income on either a regular basis or more sporadically.


3. Business owners living largely on dividend income could consider choosing to take some investment income as savings income.


4. Children under 18 – and sometimes even older – mostly have relatively low earnings or other non savings income. The tax-free savings income they could receive from a non-UK life policy or other source could be really tax efficient.

The scope to benefit from different tax rules could be especially important for people in retirement. They can then take advantage of the possibility of limiting one kind of income for a few years in order to draw another type of income or gain. In some years, it might make sense to draw relatively little taxable pension, but take a lot of bond withdrawals and capital gains. In other years, it might make sense to maximise the taxable pension benefits. Of course, it is important to make sure the investment strategy drives the tax planning, rather than the other way round.

Danby Bloch is chairman at Helm Godfrey

Independent analysis of Prudential's With-Profits Fund

Financial Advisers seeking independent analysis of the Prudential With-Profits Fund can now download a Prudential extract of AKG's 2015 UK Life Office With Profits Reports specifically highlighting Prudential's details, including its popular PruFund range of funds.

Click here for the full report

Johnson Fleming is a finalist at UK Pensions Awards 2016

The UK Pensions Awards shine the light on excellence and recognise the advisers, providers and investment managers that offer the highest level of innovation, performance and service to occupational pension schemes and their members.

This year's awards looked at advisers and providers across 31 different categories and were rigorously judged by a panel of senior scheme managers, trustees and advisers.

Johnson Fleming was announced as a finalist in the Employee Benefits Consultancy of the Year category, alongside Aon and Capita.

On Thursday 5 May we attended the exciting awards at the Grosvenor House Hotel in London. Unfortunately we didn't win but to be considered in such high regard in an extremely competitive category is a massive achievement.

We believe our personal approach sets us apart from our larger competitors and we pride ourselves on this. Johnson Fleming CEO, Simon Fletcher commented:

“Here at Johnson Fleming we adopt a pro-active approach and offer innovative solutions that make a difference to our clients, ensuring we are there at every step of the process for them, their business and their employees.

“We understand that ensuring our customers are happy and putting their needs first means they'll return to us; excellent service is as important as acquiring new clients.”

Congratulations to Capita Employee Benefits on winning the award, and to all of the 2016 winners.

Mark Dampier: Why you should not give up on M&G's golden boy just yet

Many years ago I visited a client who I had set up with an investment portfolio that had got off to a cracking start. I was looking forward to the meeting and keenly anticipated congratulations on my brilliant fund selection. How naïve I was.

Instead of praising the performance of the funds that had done well, the client wanted to discuss  the two laggards of the portfolio. His proposal was to sell the poor performers and reinvest the proceeds into those that had done better.

If you are feeling generous, you might view this as an early momentum strategy. However, the more likely conclusion was that he had fallen into the short-term chasing-returns trap many amateur investors do.

I explained the purpose of his portfolio was to provide diversification and the obvious outcome is that some investments will perform better than others. As investments tend to move in cycles, the poorly-performing fund of last year could be your best performer in the following 12 months. Provided the initial rationale for buying the investment still applies, it is often worth holding on.

That conversation took place over 25 years ago, but I have had many similar since. I had hoped, over time, investors would realise the importance of viewing a portfolio with the long term in mind.

Take the M&G Recovery fund. Manager Tom Dobell was “golden boy” five years ago but is considered by many today to be a failure. His sin has been a period of underperformance at a time when other funds have done relatively well. There is no denying he has made some mistakes; something he readily admits to. He probably held on to some of his winners too long and his oil and mining exposure has hardly been helpful.

By his own admission, companies such as Kenmare Resources, Gulf Keystone, FastJet and White Energy have taken up a great deal of his time and cost the fund. However, they are small holdings and in normal years there would have been a number of strong performers to offset their losses. Four of the fund's companies were subject to takeovers last year, providing a welcome boost to performance, but there are usually many more.

Aside from a number of stock-specific issues, there is another reason for the fund's underperformance. In a world of sluggish economic growth many investors have remained cautious, favouring “quality” companies for their perceived certainty of earnings delivery. This is the type of company the manager naturally avoids, meaning the fund has missed out on the gains made. On the other hand, the recovery stocks he tends to favour have been shunned by the market.

Tullow Oil is one such company. The oil and gas manufacturer has suffered a torrid time and has a large amount of debt on its balance sheet, which in the current environment of low oil prices has made investors wary. Dobell takes a different view, however, as the money is being used for expansion. He believes investors have overlooked the company's potential.

Dobell's portfolio of undervalued and out-of-favour stocks currently interests no one and his golden boy status has transferred to managers with a heavy focus on the “quality” companies mentioned previously; funds that are the antithesis of Dobell's.

With my former client's views still ringing in my ears, I can understand the temptation for investors in M&G Recovery to switch to a more recent success story. However, my argument back then still stands now. No investment can be successful all the time and there will come a time when the economic environment changes to suit Dobell's approach.

As it is impossible to know when that might be, a well-diversified portfolio could benefit from holding both types of fund. A foot in many different camps is often a much more rewarding strategy over the long term than taking big bets in one direction.

Mark Dampier is head of research at Hargreaves Lansdown

Omnium Wealth Management's Ross Butters on technology's key role in successful advice firms

Ross Butters, managing director of Omnium Wealth Management, discusses technology's role in successful advice firms.

Why Natixis is strenghting its footprint in the UK market

John Hailer, CEO of Natixis Global Asset Management, says the company is focused on the UK, which it sees as being one of the world's largest wealth markets with an unrivalled understanding of investments and funds.

Sipp firms impose property managers on savers

Standard Life and James Hay are imposing strict rules, including compulsory property managers, on customers who hold property within a Sipp.

The providers require a property manager to be involved even if the Sipp member is also the tenant.

A Standard Life spokeswoman says customers must use DTZ, Lambert Smith Hampton or CBRE as manager.

Members must also use Aviva as the block insurance policy provider.

A James Hay spokeswoman says while members can self-manage in some legacy products, an agent will be appointed for modern plans.

AJ Bell requires a property manager, but it can be the Sipp member.

Rowanmoor, Suffolk Life, Talbot & Muir, Dentons, and Xafinity do not impose a property manager.

Xafinity head of business development Jeff Steedman says: “Most clients like to have choice over their Sipp matters and this includes property management and insurance.

“We continue to allow them the option to choose their own solicitor for legal work, their preferred Royal Institution of Chartered Surveyors [firm] for valuations, their own bank for Sipp borrowing.”

Market outlook from Artemis CIO

Peter Saacke, Artemis' CIO, suggests what may lie ahead and explains how volatility suits stockpickers.

Eight year jail sentence for insider dealing pair

Two crooks have been hit with jail sentences after being convicted of insider dealing this week.

Investment banker Martyn Dodgson and chartered accountant Andrew Hind were convicted on Monday, and have now been handed 4.5 years and 3.5 years, respectively.

Dodgson's sentence is the longest ever handed down for insider dealing in a case brought by the FCA.

Confiscation proceedings will also be pursued for both.

It marks the conclusion of the FCA's largest ever investigation into insider dealing, and saw the regulator partner with the National Crime Agency under the banner of Operation Tabernula.

Tabernula has so far seen the authorities secure five convictions, including those of Dodgson and Hind.

The FCA and its predecessor, the FSA, has now secured 30 convictions for insider dealing.

Sentencing Dodgson and Hind, His Honour Judge Pegden, described their offending as “persistent, prolonged, deliberate, dishonest behaviour.”

FCA director of enforcement and market oversight Mark Steward said: “This case involved serious offending over a number of years, conducted in a sophisticated way using deliberate techniques to avoid detection. Dodgson was an approved person who was entrusted by his employer with sensitive and valuable information. He betrayed that trust by exploiting the information for his own benefit, conspiring with Hind to deceive the market

“Insider dealing is ever more detectable and provable. And this case shows lengthy terms of imprisonment, not profits are the real result.”

Between December 2006 and March 2010, personal friends Dodgson and Hind used inside information sourced from Dodgson to effect secret dealing for their own benefit.

To prove the conspiracy, the FCA – working with the NCA – relied on five acts of insider dealing at five companies: Scottish & Newcastle in October 2007, Paragon Group of Companies in July 2008, Just Retirement in October 2008, Legal & general in February 2009, and BSkyB in March 2010.

The investigation uncovered elaborate strategies used by Dodgson and Hind to cover up their activities. These included using unregistered mobile phones, encoded and encrypted records, safety deposit boxes and the transfer of benefit using cash and payments in kind.

MAS shelves digital support service and cuts nine roles

The Money Advice Service has shelved plans to introduce a piloted digital service as it put nine roles at risk of redundancy due to scrapping its entire marketing budget.

The MAS announced its 2016/17 business plan today, which confirmed its overall budget would reduce by 7.5 per cent to £75m and its £8.83m marketing budget would be cut entirely.

MAS chief executive Caroline Rookes told Money Marketing an “assisted digital service”, that was piloted for six weeks with Money Saving Expert, will not be permanently rolled out due to the MAS being shut down.

The pilot combined online and telephone support and the MAS said last year it was reviewing the pilot results with a view to offering a version of the service through financial guidance websites.

Rookes says: “In view of the announcement at the Budget things like that have been out on hold.”

Elsewhere, the MAS is also continuing to work on filling guidance gaps, particularly for people in the “squeezed middle” and because many existing services are small and local.

It will invite third-party organisations to bid for use of a £7m fund intended to develop the services currently on offer.

Rookes considers the latest business plan builds on the “excellent foundations” of the agency's work in 2015/16 and will continue to help people manage their money.

She adds: “[It is] also to start to make the transition from the Money Advice Service to the new organisation.

“What we mean by that for 2016/17 is starting to build the capacity and expertise for commissioning money guidance once the new organisation comes into being because the proposals are we will not have a direct service and we will not have a consumer brand, we will commission through others.”

The MAS is working with the Treasury and the FCA on the transition and a steering group with representatives from the three organisations has been set up.

On the eradication of the marketing budget, Rookes adds: “It is something that has been very controversial throughout the life of the Money Advice Service and it is clear that although the proposals that were published at the Budget were still only for consultation it was clearly the intention we would not spend any more on marketing.”

Robert Reid: Why having the risk conversation is vital

With all the discussion around due diligence, much of it has centred on products, platforms and providers, with the client sitting firmly to one side. But just as important as due diligence on providers is making sure there is a robust process in place to determine a client's risk profile. There needs to be more than just a form; there needs to be a conversation.

Far too many advisers are still not recognising risk profiling as anything other than a tick box exercise that, once completed, simply lets you move on to the next step. It is a bit like certain online terms and conditions check boxes you must complete to proceed. Many of us just check the box without reading the reams of text in front of us.

For me, the risk conversation is even more vital if your default is tracker funds. I have to say this does not mean I am advocating a more active approach, it is just that, minus the conversation, some clients may find accurate tracking hard to take in a volatile market.

It is fair to say that using certain passive funds where there is reduced volatility (that is, not pure trackers) may be attractive to some clients seeking low costs but not so low they have to endure volatility at a level they would be uncomfortable with. This is not a process that is easily explained and carried out on paper or on a website, so a face-to-face meeting is needed to arrive at a suitable recommendation.

Taking clients to the point at which they can confirm they are agreeing to a recommendation from the position of feeling fully informed is essential in delivering advice that can stand the test of time, irrespective of who reviews it later. In short, all advisers need to ensure their clients have reached the state of informed consent.

To get to that position clients need to understand any products being used and the strategy that is being deployed, and be comfortable with the investment risk they are taking while remaining under their maximum capacity for loss.

Relying on third party assessments are fine provided you understand how they arrived at their conclusion. Taking things on trust in the current and developing regulatory environment is far from sensible. Some may go further and suggest it borders on recklessness. It is important to state that the principle of informed consent extends to the adviser in their discussions with the providers and platforms involved.

Conversations are the glue that holds a robust and reliable investment process together. Without them, there is a real danger that everyone involved is not on the same page.

Talking of the need for a conversation, the last few weeks have seen Standard Life's 1825 busy on the acquisition trail and those bought out prompted to tell us a restricted proposition is not necessarily inferior to an independent one.

The best protection any client can hope for is an absence of conflict of interest and it is fair to say that being restricted does not prevent that. However, it does make it more difficult, especially if something does not align with the new parent's objective to move product.

I would be interested to know if any of those who sold canvassed their clients to determine their views with regards to their adviser becoming restricted. I suspect they did not and now the marketing will need to step up a gear to prevent any clients looking, then going, elsewhere.

Robert Reid is director at The Ideas Lab

Neptune India: three stocks we're buying & the one we're not

By Kunal Desai, Head of Indian Equities

The Neptune India Fund's investment process serves as a key differentiating feature of the portfolio versus its peers, contributing to its significant outperformance under Manager Kunal Desai's tenure. Focusing on industry disruption, accounting quality, liquidity and corporate governance, Kunal sets out three stocks that he's buying in the Neptune India Fund – and the one he's avoiding.

Click here to view stocks

Important information: Investment Risks

Neptune funds may have a high historic volatility rating and past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations and your clients may not get back the original amount invested. Investments in emerging markets are higher risk and potentially more volatile than those in established markets. References to specific securities and sectors are for illustration purposes only and should not be taken as a solicitation to buy or sell these securities. Neptune funds are not tied to replicating a benchmark and holdings can therefore vary from those in the index quoted. For this reason the comparison index should be used for reference only. Please remember that forecasts are not a guide of future performance. The content of this document is formed from Neptune's views as at the date of issue. We do not undertake to advise you as to any change of our views. Neptune does not give investment advice and only provides information on Neptune products. Please refer to the Fund's prospectus for further details.

Britain's “Forgotten Army”: The collapse in self-employed pension membership – and what to do about it

Pension scheme membership among employees has risen by more than five million in the past four years because of the policy of automatic enrolment into workplace pensions. But Britain's army of 4.4 million self-employed people, who account for one in seven of the workforce, are not covered by automatic enrolment.

Pension coverage among the self-employed is not just low but it is falling and has now reached crisis levels.

In the mid-1990s, estimates by the Department for Work and Pensions suggest that 62 per cent of self-employed men of working age were saving into a pension. By 2012 that proportion had fallen to just 22 per cent (see Figure 1). There is a real risk that millions of self-employed people are heading for poverty in retirement unless action is taken.

Figure 1: Self-employed, working-age men, by whether currently contributing to a personal pension, 1996/97 to 2012/13 (percentages).

Source: Family Resources Survey, Department for Work and Pensions [data not available for 06/07 to 08/09]

A new report published by Royal London – entitled 'Britain's “Forgotten Army”: The collapse in pension membership among the self-employed – and what can be done about it' – offers a practical solution to that problem. The report recommends a substantial 'nudge' to get the self-employed saving in a similar way to the successful approach that has been adopted for employees.

The report recommends that the special category of National Insurance Contributions (NICs) paid by self-employed people on their profits – Class 4 NICs – should be charged at a rate of 12 per cent rather than the current 9 per cent. But, instead of the additional contribution being retained by the Government, self-employed people would be able to opt to have that money diverted to a pension or Lifetime Isa, provided that they made their own direct contribution of at least 5 per cent. The combined contribution of 8 per cent would match the statutory minimum under automatic enrolment.

While self-employed people would not be forced to take out a pension, this would be the only way they could benefit from the additional 3 per cent of NICs that they had paid in. This is very similar to the way in which employed earners can only get a 3 per cent employer contribution if they stay enrolled in a workplace pension – if they opt out, the employer contribution stops. It is estimated that around three million self-employed people would be covered by the new scheme and it could increase the number of self-employed pension savers by well over two million if opt-out rates are similar to what they currently are for automatic enrolment.

Steve Webb, Director of Policy at Royal London, said:

“Self-employed people are missing out on the surge in pension scheme coverage among employed earners. Indeed, whilst the number of self-employed people is growing, their membership of pension schemes has collapsed and is now at crisis levels. It is time for action. Using the existing National Insurance system to mirror the process of automatic enrolment is the best way of giving self-employed people a 'nudge' to start saving for a pension. In addition, because self-employed NICs are linked to profits, contributions would automatically go up in good years and down in poor years. Without action, millions of self-employed people could face poverty in old age.”

Commenting, Mike Cherry, National Chairman of the Federation of Small Businesses, said:

“This report makes an interesting and valuable contribution to the debate surrounding how to best support the self-employed to save for their retirement. With the number of people choosing to be self-employed at a record high, this is a subject which needs much greater thought and attention. FSB will shortly be publishing our own research, which will shed further light on the challenges raised in this timely Royal London report.”

Welcoming the report, Huw Evans, Director of the Association of British Insurers, said:

“This is an important report into an area of public policy that has received little attention in recent years: how to encourage self-employed people into greater saving for retirement. I hope Royal London's proposals kickstart the debate that is needed so the decline in retirement saving from the self-employed can be tackled effectively.”

 

To find out more about “Britain's Forgotten Army”, click here to download the full policy paper.

Phil Young: The socially responsible investment advice quandary

The new types of socially responsible investments pose a quandary for advisers. Neither regulation nor legislation need to change but advising on these SRIs does not fit into the usual pattern and process of advice.

They can come in all kinds of formats, not just a fund. The SRIs I discuss here are typically single businesses organised around a common social good.

They differ from traditional ethical or “green” investments in that ethical funds seek to achieve investment returns while avoiding certain types of business, such as tobacco and weapons. Advising on these ethical investment funds is a specialised subset of advising on investment funds. In contrast, the new breed of SRIs are specifically seeking to invest in specific projects or people who need help.

They are not a charity, as an SRI includes the possibility of a financial return, not simply an emotional one. But where does the priority lie? An investment return could be far more predictable elsewhere. Is the thrill of investing in something risky mixed with the emotional return in helping good causes the real attraction? Inevitably, as SRIs start to professionalise, the costs and charges of running them as investments will direct some of the money into the business of financial services administration.

We already see this in the bigger, more professional charities regularly criticised for investing too little of the donations received into charitable causes and too much into themselves. The counter argument is this professionalism allows them to gather far more money in absolute terms and a sustainable charity is better for donors and donees alike. So they are a business but probably a very high risk one.

It is possible an investor in an SRI is interested purely in the best potential returns from the universe of all qualifying SRIs but it is likely they will be more interested in the cause in which  they are investing.

The pitches from SRIs I have seen to date have focused on the causes, with a very limited financial track record to point to. A reasonably diverse portfolio of SRIs with a demonstrable performance record might emerge over time but right now many of the new ones look like a bit of a punt.

Social investment tax relief gives them a tax break similar to a  venture capital trust or an enterprise investment scheme through deferral of capital gains tax. Older, wealthier clients may pick up on this first. However, they can be small, single companies with limited track records, so potentially harder to research and validate than a VCT or EIS.

Affordability and education

As a pure investment with no altruistic considerations, no adviser would ever recommend one. So how do you help a client interested in investing in an SRI?

As part of their financial plan, you can advise them how much of their portfolio they can afford to lose. You can explain this is a high risk strategy and not something you would advise as part of your own investment advice. You can explain what part of their portfolio needs to be traditionally invested and what can be used on a discretionary basis for philanthropic work. The expectation can be set that there will be no expected return. It might be they do not have this money to spend comfortably and they need to understand something else in the plan needs to be sacrificed to pursue this course.

Should a client come to you with an SRI they have selected and ask for your assessment of it, you are being asked in a professional capacity. If it is a fund it may be simple enough but undertaking due diligence on a small company will be difficult. It is also worth checking if the instrument used is covered by your regulatory permissions.

It is important to communicate what you can and cannot do and where responsibility lies. If you do not want to advise in this area, do not include anything that could be construed as an initial or ongoing advice charge on this part of a client's portfolio.

Philanthropy is a growing area in the UK and is already huge in the US. Broader questions will be  asked about whether it is right to make charitable giving contingent on returns if it will take money away from charities or help privatise state functions in the longer term.

Conflating charity and investment means there is a danger neither will be done well and that poses a problem in the context of “professional” investment advice and the broad spectrum of choices available. Serious thought is required before advising on it but it will appeal  to some very wealthy clients.

Phil Young is managing director at Threesixty

Aegon acquires 350k customers in swoop for BlackRock platform

Aegon is to acquire BlackRock's defined contribution platform and administration business for an undisclosed sum.

The deal sees Aegon acquires around £12bn of assets and 350,000 customers, creating a workplace savings platform with total assets of £30bn.

BlackRock head of DC Paul Bucksey will be managing director of the merged business.

Following the transaction, the US giant asset manager's £65bn UK DC business will focus on investment management.

Aegon UK chief executive Adrian Grace says: “The combined strength and breadth of expertise makes us a compelling choice. With employers demanding additional solutions to meet employees' needs to and through retirement, workplace savings are no longer just about traditional DC pensions.

“BlackRock's renowned strength as a leading investment manager means it retains its role as the primary investment manager for the clients who will transfer to Aegon as part of the transaction.”

BlackRock head of EMEA David Blumer adds: “The pensions and investment landscape has changed significantly in the UK over the last few years. BlackRock believes Aegon's broad retail product and digital capabilities will best serve the increased demand from employers for holistic retirement solutions in the future, and are a perfect partner to deliver on our DC platform and administration clients' growing needs.”

The transaction, including the transfer of assets and liabilities to Aegon is subject to regulatory and court approval.

Earlier this year Money Marketing revealed Aegon has been in talks with L&G over acquiring Cofunds.