Bonds going bust? Not so fast….

In recent months bond bears have been reinvigorated, and market commentary suggesting “the end of the bond (bull) market is near” has become commonplace. We think these comments are premature.

Explaining the global government bond sell-off

October has seen renewed pressure on global government bonds, initially provoked by a Bloomberg article suggesting that the ECB was considering when to taper its quantitative easing programme; a story, by the way, that has now been fully refuted by Mario Draghi.

But there are other factors at play as well; overall, the global government bond sell-off appears to have been driven by:

• The idea that central banks are out of ammunition, or have lost their desire to continue with QE/NIRP/ZIRP


• A potential for a shift from monetary easing to fiscal easing


• Concerns about rising inflation, driven in particular by higher oil prices

As illustrated below, most global government bond yield curves have seen a notable bear steepening this month.

Why have gilts underperformed?

Gilts have been notable underperformers during the global government bond sell-off that began in October.

The catalyst was the Conservative Party conference that concluded on 5 October, where lingering market hopes of Brexit not actually happening were dashed by Theresa May, who put forward policies suggesting a “Hard Brexit”, the implication being that the UK would leave the single market. She also appeared to criticise the Bank of England's QE policies, suggesting a move away from monetary easing to fiscal easing. Reduced monetary stimulus and greater fiscal easing should cause higher yields and steeper yield curves, all else being equal.

The policy uncertainty that resulted from the conference helped cause a 6 per cent plunge against the US dollar and a 4 per cent drop against the currency of the UK's main trading partner, the euro. Sterling weakness pushed both inflation expectations and government bond yields higher.

The factors above have contributed to UK assets starting to exhibit a risk premium. This is illustrated below, where the correlation between US and UK interest rate differentials and the GBP/USD exchange rate has recently broken down.

The UK, then, is at the sweet spot for a number of factors driving higher yields and steeper yield curves:

• Higher inflation and inflation expectations


• A twist away from QE to fiscal easing


• Lack of confidence in UK Plc from abroad

Is the sell-off justified?

There is certainly some basis to the drivers, but investors need to be careful to differentiate between markets.

Inflation

Inflation is edging higher in the US, and there is potential for that to continue if the labour market continues to tighten. However, the US is an exception in the developed world: core inflation in the eurozone stands at just 0.8 per cent, while market-implied measures of future inflation remain extraordinarily depressed.

In the UK, headline inflation will inevitably rise after the fall in sterling. GBP effects on inflation appear with a lag, so we are yet to see the full pass-through, but recent headlines about UK inflation 'rocketing' higher are misleading: September headline inflation was only 1 per cent YoY, while core inflation is currently at 1.5 per cent. It seems unlikely that this will jump much above 2 per cent in the next few years.

Meanwhile, global deflationary dynamics are persisting, and policymakers are likely to look through the base effects caused by higher oil prices. Indeed, China's 8 per cent devaluation in the past 12 months on a trade-weighted basis means that China is exerting even greater deflationary pressure on the rest of the world than when Chinese producer prices were falling at a rate of 6 per cent YoY in 2015.

Is QE dead as a policy tool?

The aggressive bear steepening seen in most bond markets suggests markets are pricing in a reasonable prospect of QE ending soon. This began with the Bank of Japan, which was set to 'engineer' a steeper yield curve. Investors were then left disappointed as the curve flattened following the actual event. The BoJ's targeting of 10-year yield is certainly not the end of QE, and could in fact involve more purchases. It certainly acts as an anchor for global bond yields.

We also don't believe there will be any meaningful ECB tapering: eurozone inflation is very low, inflation expectations are anchored, growth is weak and unemployment is still high, which means we are unlikely to see inflation pressures. If they go ahead and do taper, we think it would be a policy error that would be reversed, and would represent an excellent buying opportunity.

Step forward fiscal policy?

Central bankers have been asking politicians to do their bit for some time, and it seems, in some cases, we may see this happening. Overall, this seems a sensible approach: QE has diminishing returns, other negative externalities (such as inequality) and would work better if supported by fiscal policy.

The key is to understand that the future policy mix could vary enormously by country. In the UK, for example, there seems to be political will to increase fiscal stimulus, and questions at least about the benefit of additional monetary stimulus. In Europe, however, fiscal caps and Germany's conservatism make any large fiscal expansion very unlikely, which is another key reason why we think the ECB will ultimately have to extend QE, and probably increase it. In Japan they have been doing huge monetary and fiscal easing for years, but with little to show for it. The lesson from Japan is that, if a country's demographics are rapidly deteriorating, in the long term it probably doesn't matter what the policy mix is since growth will probably weaken regardless. Lower growth means lower bond yields.

Our takeaway is simple: the domestic and global factors that have sent bond yields higher are already priced in; while we thought that government bond yields got too low in August and September, we think G10 fixed income remains attractive to own at current levels.

Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors might not get back the full amount invested.

Past performance is not a reliable indicator of future results. If the currency in which the past performance is displayed differs from the currency of the country in which the investor resides, then the investor should be aware that due to the exchange rate fluctuations the performance shown may be higher or lower if converted into the investor's local currency. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer companies at the time of publication. The data used is derived from various sources, and assumed to be correct and reliable, but it has not been independently verified; its accuracy or completeness is not guaranteed and no liability is assumed for any direct or consequential losses arising from its use, unless caused by gross negligence or wilful misconduct. The conditions of any underlying offer or contract that may have been, or will be, made or concluded, shall prevail.

This is a marketing communication issued by Allianz Global Investors GmbH, www.allianzgi.com, an investment company with limited liability, incorporated in Germany, with its registered office at Bockenheimer Landstrasse 42-44, 60323 Frankfurt/M, registered with the local court Frankfurt/M under HRB 9340, authorised by Bundesanstalt für Finanzdienstleistungsaufsicht (www.bafin.de). The information contained herein is confidential. The duplication, publication, or transmission of the contents, irrespective of the form, is not permitted.

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Profile: LV='s new chief executive Richard Rowney on getting the right culture

Sometimes a mistake can turn out for the best, as Richard Rowney knows only too well. Just a few months into the job as chief executive of LV= Rowney is busy building the firm into a challenger brand. He wants it to be known for innovation and its “can do” attitude, alongside the values and standards people associate with retail firm John Lewis. But things could easily have been so different if Rowney had not taken home the wrong job application from his university pigeon hole back in 1992.

He says: “I wanted to take a British Gas overseas application but when I got home I found I'd taken the Barclays one by mistake – and it was the last day of term. I looked at the application and dismissed it as a practice run. I didn't want to become an accountant.”

Rowney ended up on the graduate training scheme at Barclays and stayed with the firm for 15 years, working in a range of departments. It was during a management programme at Harvard as chief operating officer for premier banking that Rowney started to question his future with it. He resigned the day he got back.

“You rarely get a chance to stand back and think about what you want to do and this was a six-month reflection period. I fell out of love with the culture at Barclays. It had changed; it had lost sight of its values and had become investment banking dominated. As a senior leader you make a decision about if you're senior enough to change things or whether to move on,” he says.

“There is no point in coming into work to do it grudgingly. I know some people don't have a choice but I've always felt you've got to be passionate about it. It doesn't matter if you're getting up at 5am if you're doing something you enjoy.”

“I know what I am not good at so you build a team around you that can cover your blind spots.”

Rowney grew up knowing what hard work means as his parents ran a hotel business. At one point he thought about joining them but also toyed with the idea of becoming a lawyer, then working outdoors.

At Harvard he realised he would not be satisfied until he was the man in charge. “I've always known I wanted to 'run my own train set'. You know inherently. Some people just know they want to run a division or a company,” he says.

Rowney finally got the chance in 2010 as managing director of the life and pension business at LV=. His move to the group from Barclays three years earlier had essentially been a sideways one, made with a view to running one of the business units.

Rowney had no particular expertise in life and pensions at the time but felt confident he could do the role. “I know what I'm not good at so you build a team around you that can cover your blind spots,” he says.

Rowney went on to play a big part in turning around the fortunes of the LV= life and pensions business. A £7m operating loss in 2014 had become a £41m operating profit by 2015. Rowney says the turnaround was driven by commercial leadership that focused on the needs of the customer.

“We championed enhanced annuities as opposed to standard annuities and responded early to the pension freedoms with the fixed-term annuity,” says Rowney.

The launch of the one-year fixed-term annuity in only eight days following the Budget announcement on pension reform is Rowney's proudest moment. The product was designed to give some breathing space to people who wanted to defer retirement to take advantage of the new freedoms.

“Within two hours we'd created an action plan around what was right for the customer if they wanted to back out of annuitising. Some companies would have forced it through if it was in the pipeline. If we were a big organisation we would have been debating it for 80 days.”

Rowney is passionate about trying to restore consumer confidence in financial services so people know not all firms are trying to rip them off. And trying to do the right thing is paying off.

“Advisers went from thinking of us as a sleepy little mutual on the south coast to a bigger company with ambition. We've come in as a leader willing to challenge the status quo and set the bar higher,” he says.

Robo-rumble

Take robo-advice, for example. Last year LV= invested in robo-advice developer Wealth Wizards, which runs an automated retirement advice service. Rowney says LV= got involved because pension freedoms should be supported by guidance or advice so people do not regret their decisions at retirement.

“The majority of robo-advice is for people who have £5,000 to £10,000 and want investment advice but don't want to see an adviser. They provide answers about their attitude to risk and a recommendation for an investment fund pops up. I'm not being dismissive of it but that's not hard to do.

“We went to the other end of the spectrum. We asked ourselves whether we could find a way of lowering the costs to design an advice service for £200 and use technology to replicate what the adviser would do. If you can teach a computer to play chess, you can use it to work through simple pension options.”

Rowney is quick to add that the automated advice service, which is backed up by telephone support, is not being used to compete with living, breathing advisers. Its target market is people with assets of up to £50,000 who would not go to an adviser. But Rowney says advisers are also showing interest in it for their businesses as a way of lowering the cost of providing advice.

“That is how we will close the advice gap: not just selling it directly to clients but selling it to financial advisers; giving it to companies to white label it.”

Five questions

What's the best bit of advice you've received in your career?

To do a job you are genuinely passionate about and that you enjoy, so that it doesn't become a chore.

What keeps you awake at night?

Nothing! I sleep like a baby and I'm not a worrier.

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

Robo-advice in all its different forms. Technology and human interaction is shaping the advice sector.

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

Keep doing the things that encourage innovation in the sector.

Any advice for new advisers?

Don't see technology or the introduction of new tools as a threat. Embrace it as other industries do to provide a better service for customers and make your business more cost-effective and profitable in the long term.

CV
2016-present: Chief executive, LV=

2010-2016: Managing director, life and pensions, LV=

2007-2010: Group chief operating officer, LV=

1992-2007: Various retail and corporate banking roles at Barclays including chief operating officer for premier banking, integration director and graduate trainee

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EU to delay Priips regulation until 2018

The European Commission has decided to delay the introduction of its Priips regulation by one year, Money Marketing understands.

The European Commission is understood to have announced a 12-month delay of the directive today in a meeting with a Council Working Group.

The Commission will publicly announce the decision on 9 November, despite previously announcing a debate would take place on the 22 November.

The decision comes after months of debates, which culminated in the vote from the European Parliament to reject the current regulatory technical standards for the implementation of Priips' Key Information Document.

A one-year delay to the directive has already been supported by most of the EU members, including the UK, France, Germany, and Ireland.

A European Commission spokesman said the commission could not comment “at this stage”.

Priips, which will apply to a wide range of firms, including banks, insurers, and investment managers. aims to extend Mifid II standards on consumer protection to insurance-based investment products.

In July, MEPs already objected to the KID rules as being misleading for investors.

A group of asset managers, including BlackRock and Schroders, have also written to the Commission asking to it rethink about excluding past performance data within the KIDs.

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Mick McAteer: EU shouldn't follow pension freedoms 'disaster'

The Financial Inclusion Centre director Mick McAteer has urged the European pensions industry not to follow the UK on its “disaster” pension freedoms reforms.

McAteer, a former FCA board member, argued against pension freedoms at an EU Commission hearing on personal pensions in Brussels this week.

Speaking to Money Marketing after the hearing, McAteer says: “UK pension freedom and choice reforms were a disaster. I would advise the rest of Europe not to follow the UK on this. People should always look at the UK to learn how not to do stuff.

“Consumers would be exposed to more longevity risk, more market and misselling risk and more scams. It will push up the costs for saving for retirement as well. We think the freedom and choice will just add more advice, distribution and product design costs into the pension system.”

But Royal London director of policy and former pensions minister Steve Webb says pensions freedoms are about “trusting people with their own money” and that people had been “extraordinarily sensible” with their pots since April 2016.

He says: “If we are not prepared to [trust people with their money] then we might just give up. Rather than pensions having been dry and dull with the Government telling you what to do, you now tend to choose, so if you want an annuity you can still buy an annuity.”

Hargreaves Lansdown senior pension analyst Nathan Long says access to quality information and advice remains crucial for the continued success of the pension freedoms as opposed to product innovation.

He says: “New products are not necessary to make sensible post-pension freedom decisions. For many a combination of annuity and income drawdown can provide the necessary balance between income security and flexibility to suit their own personal circumstances.”

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Artemis Monthly Distribution Fund: Investing for income

Even over the long term, real interest rates aren't expected to rise much above 1 per cent. So where may investors find income? James Foster and Jacob de Tusch-Lec, co-managers of the Artemis Monthly Distribution Fund, examine the opportunities

Last December, the Bank of England asked two big questions. First: how far have 'real' interest rates fallen worldwide? Second: how likely are they to remain anchored at their current depressed levels? In a working paper, Secular Drivers of the Global Real Interest Rate, it argued that long-term real interest rates worldwide had fallen by around 4.5 per cent over the past 30 years through a combination of demographic changes, shifts in saving preferences and a glut of 'precautionary' saving by emerging markets. It then offered this gloomy assessment:

“The global neutral rate may remain low and perhaps settle at (or below) 1% in the medium to long run. If true, this will have widespread implications for policymakers.”

This is not, however, a question of mere academic interest to central bankers. Savers looking for income are entitled to find the prospect of real interest rates fluctuating at or around 1 per cent over the long term disheartening. So if the Bank of England's prognosis is correct, where may savers, investors and pensioners find income?

Real rates in advanced economies

Notes: Purple line shows the GDP-weighted average of 10-year sovereign yields for 20 advanced economies (G7, Australia, Austria, Belgium, Denmark, Finland, Ireland, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland). Grey line uses one-year ahead inflation expectations from Consensus Economics as a proxy for 10-year inflation expectations for each country (again GDP-weighted together). The blue line simply shows the difference – so this measure of real rates does not take account of changes in risk premia.
Source: IMF, DataStream, Consensus Economics and authors' calculations, courtesy of the Bank of England.

Crowded out?

Government bonds may seem the obvious answer. Helped by quantitative easing and regulatory changes obliging banks and pension funds to stockpile them, they have produced exceptionally strong returns for more than a decade. But if government bonds are 'safe' in the eyes of regulators, their yields are between non-existent and negative and the prospect for further capital gains seems slim. Moreover, if the Bank's forecast that real interest rates will fluctuate at around 1 per cent is correct, that implies a modest degree of monetary tightening from here.

Inflation has been falling for years, but one of the biggest drivers of this has been globalisation.  Anti-globalisation trends are increasing; this will counter some of these deflationary forces. That would be bad news for government bonds, whose prices are attached, albeit elastically, to the market's interest-rate and inflation expectations. Not only do government bonds not offer much in the way of yield, they must also offer a decent prospect of incurring a capital loss and potentially substantial losses after inflation is taken into account.

Where else might investors turn? Unfortunately, there is an abundance of crowded trades in any asset that produces income. Because US Treasuries are the world's benchmark 'risk-free' asset, their mispricing causes other assets to be mispriced in turn. Investment-grade bonds have been among the chief beneficiaries of the 'hunt for yield' and, more recently, of direct buying by central banks.

Recent issues by Sanofi, a French drugmaker, and Henkel, a German manufacturer of detergent, both came at a negative yield. But the effect can also be seen in equity markets, where defensive 'bond proxies' – lower-volatility stocks whose reliable, coupon-like dividends make them an alternative to bonds – have been in great demand. Their share prices have been bid up to extraordinary multiples of underlying earnings and, while that bubble shows signs that it may be beginning to deflate, we feel it has further to go.

The road less travelled

To this point, those buying investment-grade bonds – and bond proxies in the stockmarket – have benefited from being part of a crowd. Not only have the vast flows into those assets driven capital values higher, they have suppressed volatility and so attracted more investors. Because some of these post-crisis trends have been in place for so long, they seem to have assumed an air of permanence. Prices in some parts of the bond and equity markets imply that investors believe bond yields will never rise. Our concern is that this complacency may be storing up dangers for all assets.

In equities, one of the worrying consequences of the overwhelming consensus in favour of bond proxies has been that their valuations (the multiples at which their share prices trade relative to their underlying earnings) have risen to extreme levels. When tobacco stocks in the US began trading on price-to-earnings (p/e) multiples of around 18x, they had probably become too expensive. Those multiples then increased to 20x – and then to 25x. There must be a possibility of a bubble in some consumer staples stocks.

Standing apart from the crowd

Given our worries about crowded trades in bond proxies and potential liquidity concerns surrounding investment-grade bonds, we believe it makes sense not to rely too heavily on either group of assets. While we have some exposure to both, given the threat of a disorderly retreat from crowded trades we believe it also makes sense to own assets that are less fashionable. Furthermore, investing in unloved and under-owned areas can often mean we receive higher yields.

In bonds, that means complementing our holdings in high-yield bonds with capital-contingent securities (generally shortened to 'coco' bonds). These are very junior bonds – so junior, in fact, that they can be converted into equity and their coupon payments are optional. At times, the market has acted irrationally in pricing cocos, leaving them trading on ridiculously high yields. It also means owning bonds issued by insurers.

At the moment, investors remain cautious towards insurers, mostly because lower interest rates are reducing these companies' investment income. We believe this misses the important point that many insurance companies are improving their capital base. New Europe-wide solvency rules for insurers were introduced at the beginning of the year. They make comparisons easier and give us more comfort about the creditworthiness of these companies.

Another important area for the fund is the hybrid market. Their technical idiosyncrasies mean some investors remain wary of them. We believe this concern is misplaced. For as long as the underlying company is generating solid cashflows, its bonds will perform and, most importantly, provide a healthy income, which is our priority.

In equities, investing in under-owned areas means avoiding high-quality consumer staples and utilities companies in the US that trade on historically high multiples of earnings. Allied to this is our belief that maintaining a relatively high level of exposure to 'value' stocks can act as a helpful counterpoint to our holdings in bonds. If – or when – rates rise, bonds of every description will come under pressure. Value stocks, however, tend to outperform when economic growth is accelerating and interest rates are rising. So, in equities, owning value stocks rather than bond proxies provides a useful counterbalance to our bonds.

It may transpire that the Bank of England is wrong – and that real interest rates rise to a level such that cash is not just secure but also a useful source of income. That, however, seems unlikely. We therefore continue to seek monthly income across bond and equity markets without depending too heavily on the over-owned (and sometimes overpriced) assets that dominate some income funds.

THIS INFORMATION IS FOR PROFESSIONAL ADVISERS ONLY and should not be relied upon by retail investors.

The fund may invest in emerging markets. The fund may use derivatives to meet its investment objective, to protect the value of the fund, to reduce costs and with the aim of profiting from falling prices. The fund may invest in fixed interest securities. The fund may invest in higher yielding bonds. The fund holds bonds which could prove difficult to sell. As a result, the fund may have to lower the selling price, sell other investments or forego more appealing investment opportunities. The fund's annual management charge is taken from capital.

The additional expenses of the fund are currently capped at 0.14%. This has the effect of capping the ongoing charge for the class I units issued by the fund at 0.89% and for class R units at 1.64%. Artemis reserves the right to remove the cap without notice.

Any research and analysis in this communication has been obtained by Artemis for its own use. Although this communication is based on sources of information that Artemis believes to be reliable, no guarantee is given as to its accuracy or completeness.

Any forward-looking statements are based on Artemis' current expectations and projections and are subject to change without notice.

Issued by Artemis Fund Managers Ltd which is authorised and regulated by the Financial Conduct Authority.

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Master trusts set for consolidation under tough new approvals regime

Experts are predicting significant master trust consolidation in the wake of tough new authorisation criteria outlined in the Pension Schemes Bill.

The bill was published by the Department for Work and Pensions last week and sets out five criteria master trusts will have to meet.

The criteria include that the scheme must be financially sustainable, that those involved in the scheme must be fit and proper, and that the scheme funder must meet certain requirements to give assurance about its financial situation.

Master trusts will also need to show that they have adequate governance and administration processes and an adequate “continuity strategy”.

Hargreaves Lansdown senior pensions analyst Nathan Long says one measure of the bill's success will be how much consolidation occurs in the market.

According to The Pensions Regulator there are currently 81 master trusts and Long says it is possible this could shrink to as low as 10 to 15.

He explains: “From an auto-enrolment point of view, the lion's share of money has gone into the big three – Nest, The People's Pension and Now: Pensions – to consolidate these down we are not talking about big schemes merging with one another we are talking about a lot of smaller schemes disappearing.”

Long adds: “If we see the number of master trusts shrink to around the 10 or 15 number then the bill has done its job. It is saying we have got a number of schemes that have to be authorised with the regulator.”

The People's Pension policy and market engagement director Darren Philp also expects to see consolidation and stresses the importance of consumer protection.

Philp says: “There are a lot of schemes in the market now, and it would be unrealistic to think they will all survive. There is now likely to be a period of market consolidation – and savers need to have their assets protected while this takes place.”

Delta Financial director Jarrod Ellis says the stricter rules for master trusts are “long overdue”, particularly because all employees are auto-enrolled into a workplace pension only with the option of opting out at a later stage.

Ellis explains: “Something like this where you do not have a choice, for there not to be higher standards of regulation needed to be addressed. You do not want anything that will further erode that trust that people have.”

The Pension Schemes Bill also confirms The Pensions Regulator will be given new powers to intervene where a master trust –  a multi-employer scheme designed for auto-enrolment – is at risk of failing.

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Govt departments join forces over pension cold calling

The Treasury, the Department for Work and Pensions and the Department for Culture, Media and Sport are in talks over how to tackle pension cold calling.

Responding to a question for written answer submitted by former pensions minister Ros Altmann, Lord Ashton of Hyde says the three organisations are exploring ways to strengthen the Information Commissioner's enforcement powers against such companies.

Ashton says: “Specific measures under consideration are; extending the Information Commissioner's powers of compulsory audit to more of the organisations that generate nuisance calls and exploring the options for enabling the Information Commissioner to hold company directors to account for breaches of the direct marketing rules.”

Altmann also asked why the Government had not banned pensions cold calling yet.

Ashton responds: “We are determined to tackle the scourge of nuisance calls especially those of a fraudulent nature. Our efforts are focused on taking action against companies that are deliberating break the rules, rather than penalising legitimate businesses who comply with the law.”

Altmann's question came on the back of a petition to ban pension cold calls started by Red Circle Financial Planning director Darren Cooke which now has more than 1,700 signatures.

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Are D2C dynamics set for a shake-up after II-TD Direct merger?

Interactive Investor's merger with TD Direct to create a platform with assets under administration of £18bn and 300,000 clients is set to create a new model in the direct-to-consumer market, experts argue.

The deal, which has been agreed for an undisclosed sum and is subject to regulatory approval, will make the merged business the UK's second-largest online broker after Hargreaves Lansdown.

Platforum head of direct Jeremy Fawcett says the deal is a result of a change in the D2C market where online stockbrokers are shifting from an “old model” of trading stocks and shares into holding shares, together with funds and pensions and other products.

He says: “The online stockbroking part of D2C is a fairly distinct and pretty static market and that's why in 2011 TD rebranded into TD Direct Investing to show it was targeting investors rather than rapid-fire traders.

“By buying it, Interactive Investor now plans to offer its fixed annual pricing to a larger client base.”

Fawcett says fixed fees have been around for a while in D2C but are “quite a niche and new concept” in advised platforms.

Platforum research shows Interactive Investor was the UK's ninth-largest direct platform at the end of March 2015, but was “a million miles away from the biggest players”.

Now the merged platform is the second largest, although still less than a third of the size of Hargreaves.

Chelsea Financial Services managing director Darius McDermott says the deal is the start of a “long overdue” consolidation in the D2C market. He points out last year was the first in recent memory to not see any new platform launches.

But while McDermott says TD is “a good brand” for Interactive Investor, TD is not profitable, having made a loss for each of the past four years. In the year ended 30 June 2015 its losses were £33m on £14.5bn of assets under management.

McDermott says: “People are finding it difficult to make money when they have to provide good technology, reporting and systems. Decent customer service actually costs quite a lot of money and if you have a fixed costs system, that is challenging.”

Finalytiq founder Abraham Okusanya says: “TD has 500 people to administrate £14.5bn assets. I get that in the D2C world because you need more people for the customer service but that is a contrast in the platform world where you find the likes of Nucleus administrating £11bn with 120 people. This suggests there is a cost piece for TD which is unsustainable.”

Interactive Investor, meanwhile, made a loss of £922,000 for the year to October 2015.

In a statement announcing the deal, Interactive Investor says there will be no immediate change for customers of either Interactive Investor or TD Direct. But Okusanya predicts Interactive

Investor could change the fixed pricing model for TD Direct clients in future.

Fawcett agrees: “At the moment there is a lot of noise in the market with Barclays Stockbrokers replatforming, Fidelity working on their technology and Alliance Trust Savings also integrating Stocktrade. It is great for Interactive Investor to step in doing something different.”

Expert Comment: Platforum head of direct Jeremy Fawcett

Interactive Investor has had some good growth in assets thanks to the pension freedoms so it got some confidence to move forward as a bigger entity. It will look to use the long term opportunity of offering a fixed price service, which is different from HL, for example, which charges on a percentage of assets basis.

The fixed pricing model is more prevalent in the D2C world than in the adviser market. Now there will be two of the top five services operating with a fixed annual fee so consumers may begin to notice that there are different ways to pay for investing.

II has also a social media aspect that other platforms don't have through its popular message boards. This will be something II will look to benefit from.

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Govt scraps secondary annuity market plans

The government has scrapped plans to create a second hand annuities market.

In a statement this afternoon, the government said that “the consumer protections required could undermine the market's development.”

The statement reads: “After an extensive programme of engagement with industry, financial regulators and consumer groups, the government has decided not to take forward plans to introduce a secondary annuities market because the consumer protections required could undermine the market's development.

“Over the past few months, following a wide range of discussions, it has become increasingly clear that creating the conditions to allow a vibrant and competitive market to emerge, with multiple buyers and sellers of annuities, could not be balanced with sufficient consumer protections.”

The statement from the Treasury says it has always been clear that for the majority of people keeping their annuity is the best option.

The Treasury estimated only 5 per cent of people who hold an annuity would take advantage of the reform.

Economic secretary to the Treasury Simon Kirby says: “Allowing consumers to sell on their annuity income was always dependent on balancing the creation of an effective market with making sure consumers are properly protected.”

Kirby adds: “It has become clear that we cannot guarantee consumers will get good value for money in a market that is likely to be small and limited. Pursuing this policy in these circumstances would put consumers at risk – this is something that I am not prepared to do.”

The secondary annuity market was originally due to be introduced this year but, in July 2015, the Government delayed its implementation until 2017 around concerns about the impact that rushing the reforms could have on savers.

In a 2015 Budget document, the Treasury estimated the secondary annuities market would make £535m in its first year, thought to be 2016/17 at the time, and £540m in its second year. After that, the Treasury predicted it would make a loss of £130m and £120m in its third and fourth years respectively.

Last month Hargreaves Lansdown confirmed it would not act as a broker in the secondary annuities market.

You know when you publicly announce you're not going along with a government policy, and a month later they abandon it? That.

- Tom McPhail (@PensionsMonkey) October 18, 2016

Providers were widely pleased with the government's decision to abandon the market.

Aegon pensions director Steven Cameron says: “All the signs were the secondary annuity market would have been a pension freedom too far. Giving up a guaranteed income for life is a huge decision and not the right one for the vast majority. The risks and complexities for the many far outweighed any possible benefits for the few.”

Head of pensions policy at Fidelity International Richard Parkin says: “While we could understand the thinking behind this, this looked set to be complex with customers struggling to achieve good value and very few people set to see any true benefit.

“We would urge the Government to focus its attentions on ensuring the success of auto-enrolment and creating a coherent system of incentives to save for retirement.”

AJ Bell senior analyst Tom Selby says that the market would have exposed consumers to the risk of scams as well as high charges.

“The plans for a secondary annuity market were always riddled with problems. The market would have been stacked in favour of the buyer and posed unacceptable risks to savers, who could have seen the value of their pot ravaged by charges. Pension scammers would also inevitably have seized on the changes to target annuity holders.  It was difficult to see a long term market where consumers would have got good value.

“It's interesting to note that by ditching this policy, Philip Hammond has binned one of George Osborne's key pensions pledges. The industry will now wait with baited breath for further announcements from the Treasury ahead of the Autumn Statement, most notably on the future of pensions tax relief.”

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Standard Life to review non-advised annuity sales after FCA probe

Standard Life has confirmed it will review all of its non-advised annuity sales from July 2008 onward following an FCA request.

Last week, the regulator said it conducted a review of 1200 non-advised sales at seven firms. The review related to concerns annuity providers were failing to inform customers they may be entitled to a higher rate of income through an enhanced annuity.

The FCA did not find industry-wide failure but said a “small number” of firms were being investigated by its enforcement team.

In a statement released today, Standard Life says: “At the request of the FCA, Standard Life will conduct a review of all non-advised annuity sales from July 2008 to identify whether our customers received sufficient information about enhanced annuities to make the right decisions about their purchase.”

The statement adds that Standard Life is unable to give a reliable estimate of how much compensation it could have to pay out, but that the financial hit could be covered by its professional indemnity insurance.

In its 2015 accounts, Standard Life set aside a contingent liability for compensating customers after the enhanced annuity review. However, it was also not able to place a value on how much it would set aside.

The accounts say: “The outcome and consequences of our further analysis and the FCA review are uncertain but it is possible that, for relevant components of our annuity population, these consequences could include requirements to compensate customers who could have obtained a more favourable annuity rate.

“Ahead of Standard Life completing further analysis and learning the outcome of the FCA's review, it is not practicable to determine an estimate of the financial effect of this contingent liability.”

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Rory Percival's replacement at FCA named

Rory Percival's replacement as one of the leading liasons between advisers and the regulator will be Chris Hewitt, Percival has revealed.

Hewitt, a lead associate in the FCA's investment intermediaries department, worked in financial advice before joining then regulator the Financial Services Authority in 2010 and is level four qualified.

A due diligence specialist, Hewitt has had a hand in a number of thematic reviews around risk profiling, centralised investment propositions, investment advice at banks and RDR compliant adviser charging.

I am very pleased to announce that my successor is Chris Hewitt. Many will know Chris from doing very similar events to me in recent years

- Rory Percival (@rorypercival) October 14, 2016

During his time at the FSA, Hewitt encouraged paraplanners to challenge IFAs over suitability reports when they do not give enough weight to client's specific needs and objectives.

Hewitt, who frequently speaks at adviser and paraplanner events, has also given the message to firms that “size doesn't matter” when it comes to due diligence.

Technical specialist Percival will set up his own training and consultancy firm next month after ten years with the regulator.

He was previously an IFA before taking up a role as training and compliance officer at Fiona Price & Partners.

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Waspi hires lawyers to take legal action against DWP

The Women Against State Pension Inequality campaign has brought in lawyers to craft a case against the government over state pension age changes.

In an update on its Twitter account, Waspi, which is campaigning for transitional measures for women for in the 1950s who have seen their state pension age increase, confirm that they have instructed London law firm Bindmans to act on its behalf.

Bindmans consider there are two possible forms of legal action, Waspi says, either “a judicial review challenge (or challenges) to the legality of the changes to the state pension age” or “maladministration complaints regarding the wholly inadequate information given by the Department for Work and Pensions regarding these changes.”

The government has previously rejected calls for transitional arrangements to ease the impact of state pension age acceleration. Former pensions minister Steve Webb, however, told a committee of MPs late last year that it was  “abundantly clear there are a bunch of savers who didn't know [about the age rises]” because of holes in DWP's communications.

The group has already urged supporters to send a template complaint letter to DWP in a mass-mailing campaign.

Waspi is crowdfunding the legal fees through donations from members of the public.

Waspi's update says: “The best legal advice is not cheap and a large amount of money needs to be raised. The initial fundraising will allow us to take the best legal advice on a judicial review challenge at the same time as preparing materials to assist with the maladministration complaints.”

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Hornbuckle parent eyes more deals after buying up Adviser Centre

Embark Group says it is eyeing other acquisition deals following its acquisition of investment consultancy The Adviser Centre.

City Financial's investment research arm was acquired by Embark last week for an undisclosed sum.

The deal sees the The Adviser Centre team, including investment director Peter Toogood, move with immediate effect. It will operate independently from the Embark Group and retain its name.

Embark acquired Sipp provider Rowanmoor earlier this year, and also owns rival firm Hornbuckle and the Avalon platform.

Speaking to Money Marketing, Embark chief executive Phil Smith says: “We have the capacity to continue acquiring. We see two or three opportunities in one form or another regularly. Some of them are very small, some larger and in a spread of sectors. We look at lots, we act on very few.

Smith says the firm is  interested in companies which are “very simply put, with propensity of growth” and are “a good cultural fit.”

He adds: “Our focus is on being a very good provider for our client base, whether we are at £10bn assets or £100bn assets we don't care, and we don't up scale for scale's sake.”

Toogood says: “Embark Group has big pockets and will acquire more. For us, this was a logical place to go.The next stage of consulting is to go bespoke. A lot of platforms will need to do this and be better at client reporting.”

Smith says firms such as The Adviser Centre are a “real growth accelerator”.

He says: “Why don't modern pension providers have an extensive investment research service? This is a fundamental part of the business.”

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Keydata boss calls for pause in legal battle amid FCA disclosure row

The former chief executive of collapsed investment company Keydata has applied to the Upper Tribunal for more FCA documents relating to the case.

Stewart Ford is currently appealing a £75m fine from the regulator for his role in the company's administration.

Keydata, which distributed life settlement bonds through IFAs, entered administration in 2009 after authorities deemed it had to pay back millions in tax because its products did not qualify for ISA status as the company thought.

The collapse resulted in an interim Financial Services Compensation Scheme levy of £326m three years later, while more than £100m of investors' money was found to have been misappropriated.

In a letter to lawyers instructed by the FCA, and seen by Money Marketing, Ford claims the regulator failed to disclose information relevant to the appeal ahead of the Upper Tribunal hearing, and has not provided some further relevant material since the tribunal started under “secondary disclosure” rules.

In a case management hearing earlier this year, Judge Roger Berner denied five items of Ford's original disclosure requests, but asked the FCA to provide secondary disclosure of “any further material, beyond that already disclosed in these proceedings, which might reasonably be expected to assist each applicant's case”.

Ford says in the letter though some material has been disclosed, there is still material outstanding that he thinks should be disclosed.

The letter reads: “After several years of asking, only to be ignored time and time again by the FSA and your client, I see no point in repeating my request for full and proper disclosure. Instead, I will shortly be making an application to the Upper Tribunal for full disclosure to be made by your client in accordance with the tribunal rules.”

Ford has also asked the Commercial Court to delay a £650m claim he is bringing against the FCA for “misfeasance in public office” until the material has been disclosed.  The FCA applied to have the misfeasance claim struck out earlier this year.

In the letter Ford says: “Once your client has, at long last, complied with its secondary disclosure obligations in the Upper Tribunal, AAI [Consulting Limited, the company that has taken assignment of Ford's estate rights under bankruptcy and of which Ford's wife Anna is a director] will be in a position to instruct counsel to amend the particulars of claim in the present matter, based on the material disclosed. Until then, justice requires that the hearing of your client's applications for strike-out and/or summary judgment and for security for costs to be adjourned.”

The letter adds: “Given your client's long history of intransigence in relation to the disclosure process, I don't expect it will consent to such an adjournment. I am therefore preparing an application to the Commercial Court for a stay of current proceedings until a date which is not less than 90 days after the FCA has fully and properly discharged its secondary disclosure obligations.”

It is understood that the FCA's lawyers has not agreed to the adjournment.

Ford will also ask the Upper Tribunal for an order allowing him to use any disclosed material from the Upper Tribunal in the misfeasance claim.

The FCA declined to comment.

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Ian McKenna: Why are providers building standalone adviser software?

A couple of weeks ago an email from Panacea Adviser caught my eye, highlighting Just Retirement's new Quick Income Builder tool. On closer inspection and after a few more clicks I arrived at a plethora of other tools from the deferred income specialists.

These include a personal taxation calculator to look at the potential liability of releasing cash lump sums for a client's pension, an indicative lifetime mortgage tool to see how much a client could release from their property, a budget planner drawdown risk calculator to model the probability a client will run out of money while still alive and a longevity estimator. There are actually six more tools but I am not going to list them all as I do not want to spend the whole column on this.

What I do want to say is that they are generally useful tools to take a client through particular situations. After a few screens capturing the relevant information, they come up with a simple analysis that can be viewed on a device, printed or stored as a PDF.

Overall I actually quite like the look of these Just Retirement tools. However, while I can see them having some use giving an adviser a simple indication of key numbers to discuss with clients, I cannot get away from the fact the data will need to be manually rekeyed at some point to provide more specific advice.

Can an adviser really make a case for using them given they do not share data with other systems in their business, even though they appear better than most of what gets built for advisers by life companies and platforms?

Invariably these are stand-alone bits of software that look at an individual part of how an adviser might work with a specific insurer. Providing an adviser with a piece of software that will not talk to their core systems is like giving a British builder a power tool that works on an American voltage.

Building these tools can be a lucrative source of income for software suppliers, as institutional budgets are usually far larger than advisers are ever willing to pay. Indeed, it has to be said that many of the most significant advances in adviser software systems would probably never have been built if there had not been a life office or platform willing to subsidise the investment.

While this is good for the software supplier and potentially for advisers, is it really giving the life company or platform a decent return on what they have spent? Not in my experience.

But having questioned the case for providers and platforms building advice software, you do get the occasional offering that shows some organisations can be truly exceptional. A great example of this is 7IMagine from Seven Investment Management. This piece of platform technology is a joy to use.

I have had a sneak preview of some of what is coming next for that service and it is great. However, I have to wait until the adviser version is ready before I can write about it in detail. It is also worth mentioning Seven IM is looking at building true integration with leading adviser software systems, showing a far better understanding of what advisers really need than many of its peers.

But anyway, back to Just Retirement. As mentioned, I like its tools. However, I cannot help thinking it and others should spend more time challenging the business cases for building standalone software. Ideally, they would look at how they can build it to complement advisers' other systems. This can be done but it takes rather more specialist analysis and understanding of adviser processes. Time spent getting to grips with such issues would be a sound investment.

Ian McKenna is director of the Finance & Technology Research Centre

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Unfinished business?

Pension specialist Fiona Tait gives an update on three big announcements from the 2016 Budget – Pensions Advice Allowance (PAA), the Lifetime ISA (LISA) and the pension dashboard.

£500 Pensions Advice Allowance

What's new

Under current rules it is possible to deduct an adviser charge from a defined contribution pension fund to pay for financial advice, but this is limited to advice directly relating to that product, otherwise it becomes an unauthorised payment.

HM Treasury is proposing that an amount of £500 should be deductible for holistic financial advice covering not just that product but other retirement advice issues for that individual. This is significant because many legacy products do not have an adviser charge facility but more modern contracts could then be used to fund the full process. It could also potentially be combined with tax-exempt employer funded advice of up to a further £500.

When?

The final changes are expected to come into force in April 2017. In the meantime responses to the consultation are requested by noon on Wednesday 26 October, either in writing or via email. As ever we encourage advisers to make their views known.

Reality check:

We need to manage expectations. It would be foolish to suggest that this allowance could solve the advice gap all on its own but it has to be positive if more people engage with financial advice. £500 will not pay for a full face-to-face advice service but it can be used to offset the cost, or to offer technology-led service which helps people to help themselves. Promisingly, recent Royal London research with people aged 35-44 found that 87 per cent of those who had taken financial advice said they would be likely to do so again in the future.

There is also a fair amount of detail to come, regarding exactly how “retirement advice” is to be defined and how deductions will be applied to plans with guaranteed benefits. The PAA is only intended to apply to defined contribution arrangements and is it not expected to be a mandatory requirement for defined benefit schemes. While we would expect providers to offer it where they can it is unlikely to be introduced into older plans without further incentive.

Comment:

The proposal is framed in the context of pension freedoms and the wide range of options available to pension savers from age 55, however HMT agrees with the suggestion from the Financial Advice Market Review (FAMR) that withdrawals to pay for advice should be allowed before this age. Royal London believes this is essential in order to help people to understand how much they need to save to have enough to have sufficient pension options in the first place. We also support the possibility of multiple uses, perhaps linked to key ages or life events.

Finally, Royal London believes the allowance should only be available for fully regulated advice, not guidance. We applaud the work of the current guidance services, however the risk of pension liberation and scams remains high and limiting the allowance to regulated financial advisers would mean only those who are registered, and overseen by, the FCA would qualify.

The Lifetime ISA

What's new:

HMT issued a technical note outlining the proposed design of the Lifetime ISA in March. The updated note adds some welcome detail and confirms two significant changes:

1. With the exception of transfers from Help to Buy ISAs (HISAs) all contributions must sit within the LISA annual allowance of £4,000. Prior to this announcement there had been confusion as to whether savings up to the total ISA allowance of £20,000 could be held with a LISA, albeit with only £4,000 attracting a Government bonus.


2. From 2018 the Government's 25 per cent bonus will be reclaimed monthly instead of annually. This will mean that qualifying withdrawals made part-way through the year will still benefit from a proportion of the bonus.

When:

The Lifetime ISA is being legislated for through the Savings (Government Contributions) Bill, which was introduced to Parliament on Tuesday 6 September, and is expected to be available from April 2017.

Reality check:

There are still some questions to be answered around the consumer protection aspect of the LISA before we make any final decisions on our offering. It does however seem likely that it will appeal to pension providers as a complementary long-term savings vehicle which will benefit from the experience and existing capabilities they have to offer. Once more detail is provided by the Treasury we expect more providers to confirm whether they will offer a Lifetime ISA in future.

Comment:

The requirement to collect the Government bonus on a monthly basis from 2018-19 will create slightly greater administrative complexity, but it is clearly in consumer interests. We also hope that the Financial Conduct Authority (FCA)'s consultation will result in consumer protection standards equal to those applicable to pensions, particularly in relation to charges.

We agree that there should be some disincentive to take early withdrawals (although we do not consider 5 per cent to be a “small additional charge”) but also ask the FCA to consider the level of ongoing charges which are in general higher than for pensions.

The decision to go for simplicity is very welcome. Allowing ISA, or other transfers, above the £4,000 annual allowance would have been extremely complicated, necessitating separate accounts for LISA and non-LISA funds. Limiting penalty-free withdrawals to first house purchase, terminal illness or after age 60, at least at the outset, is also sensible. Borrowing in special circumstances is allowed in other countries and is worthy of consideration, however if it is to be permitted we would urge the government to keep the rules as simple as possible.

Pension dashboard

What's new

We have a definite date! HMT has announced that a prototype dashboard will be available from spring 2017. The Association of British Insurers (ABI) has agreed to manage the project and will be supported by 11 product providers, including Royal London.

The aim is for consumers to be able to access information about all their pensions savings in one place for the first time, and HMT believes it could help release the £400m-worth of pensions savings which the Department for Work and Pension estimate are currently unclaimed.

When:

March 2017 – ish (BUT see below)

Reality check:

The announcement states that a “prototype” will be available. This is NOT the final dashboard. The spring 2017 dashboard will be designed to test agreed standards and architecture, but there will not be a version accessible to the public at this stage. By 2019 the Government intends that there will be a publicly available dashboard, which is expected to include state pensions and some DC pensions, particularly those under automatic enrolment. However, as there is no legal duty on schemes or providers at present to participate, it is highly unlikely that the 2019 dashboard will give a comprehensive picture.

Comment:

Any progress and commitment to action is of course very positive, but once again consumer expectations need to be carefully managed. Royal London is fully committed to the pension dashboard working groups and will do all we can to ensure the dashboard is delivered as soon as possible.

Creating the pensions dashboard will require a lot of work, getting different pensions providers together to build a system that can handle the many types of pensions we have in the UK is no easy task. But it is worth doing! Some of the functionality and data requirements are already in place but this will have to be expanded to all pension scheme providers and all contracts, including state benefits.

And finally…

Despite the clear-out of previous ministers and rumours of different priorities for the moment at least it seems to be following the existing plan. Either that or they're clearing the decks…

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Tom Baigrie: Its insurers' job to meet the claims challenge

Last month I explained why the growth in income protection sales is a good thing for consumers and the protection market overall, and urged more effort to accelerate that growth. My logic is the more claims made on a type of insurance, the more consumers will understand the risks it covers and the more they will buy it.

Income protection has more claims than any other policy type. So more income protection equals more consumer benefit and thus more engagement with what we do, which means good times for the protection market overall.

But there is a vital proviso to this: the resulting claims have to be swiftly and fairly settled so those benefiting from them feel positively about what has happened and not furious at delay or rejection. And given human nature's focus on bad news, everyone has to be fairly treated. One shocking story will destroy the benefit of a thousand successes.

That said, I do not think we should wait until all things appear perfect before we encourage people to buy income protection. Their need is current and our present policies work very well but by their very nature income protection claims are more challenging to underwrite. That means insurers need to focus on those challenges and ensure that, despite them, honest consumers never end up feeling ripped off. That needs high and customer friendly claims service standards across the board, together with fairer policy terms and conditions.

Normally at this point in the argument one calls for leading insurers to get together and agree something. But as that never happens I have a simpler plan. Retailers should simply refuse to recommend insurers that do not have satisfactory codes of claim handling conduct. After all, it is our job to care for our customers and where else is that more important than at the point of claim?

The other key area retailers should use in selecting an income protection insurer is the treatment of those whose income varies and who can thus end up expecting greater payment than the insurer will actually provide when they come to claim. Several insurers, such as LV=, provide a useful payment guarantee but they do have limitations.

To avoid letting claimants down, the financial underwriting needs to either be done at outset and priced accordingly, or through an annual review process that proactively ensures clients regularly review cover levels in light of their actual income. Beyond that, in an era where self-employment is increasing hugely, new product development should focus on products for the very different needs of the self-employed.

We cannot wait for reform before we protect consumers but it needs to happen fast if our efforts are to avoid the risk of complaints growing in line with claims. In the interim, advisers must chose providers at least as much on their expectation of fair claims treatment as on price. And providers need to price in truly fair treatment of claimants and boast about it.

Tom Baigrie is chief executive of LifeSearch  

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Tisa: Passporting isn't essential in Brexit negotiations

Investment and savings organisation Tisa has told the Treasury that it would like the government to seek equivalence rather than full membership of the single market as it enters Brexit negotiations with the European Union.

Its initial proposals, outlined today, state that passporting, as well as the free movement of people, are not essential for its member firms, which include asset managers.

It follows proposals published by the AIC on Tuesday that state passporting is not essential for the UK's investment trusts.

Tisa has also recommended the government cut away red tape for financial services firms that do not operate in the European Union, creating a tiered regulatory system for those that want to access the single market and those who do not.

Tisa director general David Dalton-Brown says equivalence would be a “win-win opportunity”.

“Many of the EU Directives, like AIFMD and Mifid II, already embody the concept and through enabling legislation it can be added to others, such as Ucits.”

Dalton-Brown says equivalence would “facilitate the continuation of existing business” and minimise impact on the financial services sector's 113,000 UK jobs dependent on European Union trade.

He adds the government should task the FCA to start work immediately on a domestic-only version of the regulatory rulebook.

“This should focus on cutting away most of the paperwork that consumers are expected to wade through to open a savings and investments account.”

While Tisa's recommendations state that freedom of movement is not essential for the industry, Dalton-Brown says the government needs to streamline the visa process in order to get the best financial services professionals from Europe and around the globe “without delays or hindrance”.

Despite stating that Brexit provides opportunities for the financial services industry, Tisa has also urged the government to make its “proposed direction of travel” clear so firms can prepare accordingly, including securing free market opportunities with the rest of the world.

Dalton-Brown says: “We welcome the announcement on the Great Repeal Bill, but to protect the jobs of over a million people working in financial services and to allow UK financial services to prosper post Brexit, it is vital that firms can see a clear vision of what the Government's negotiating stance will be so they can commence planning for its implementation.”

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Mortgage broker refers FCA cancellation to Upper Tribunal

A mortgage broker has referred an FCA decision to cancel his permissions to the Upper Tribunal.

The FCA cancelled Michael Wilkinson's permissions to carry out regulated activities in May for providing inaccurate information about his capital resources. The regulator also found he did not meet his capital adequacy requirements for the business.

Wilkinson was a sole trader at Huddersfield-based Michael Wilkinson Mortgages.

According to the recently published decision notice,the FCA started contacting Wilkinson in April 2015 about his capital position and concerns he was reporting inaccurate information in his regulatory returns.

Wilkinson, who was also a general insurance broker, had to meet a requirement for his business to either have capital of £5,000 or 2.5 per cent of annual income, whichever was higher.

However, the regulator found discrepancies between the financial information reported by Wilkinson in his annual accounts and regulatory returns.

According to the decision notice, the difference between the capital resources level reported in the annual accounts and the FCA's retail mediation activities returns was £14,315 in 2012, £11,854 in 2013, and £8,482 in 2014.

The financial information supplied by Wilkinson showed his net liabilities for those three years were also below the required capital level.

The notice says: “The financial information reported by Mr Wilkinson in his RMARs since at least 1 September 2012 is…misleading in that it stated to the authority that Mr Wilkinson was meeting the capital resources requirement at the relevant dates whereas, based on the financial information reported by Mr Wilkinson in his annual accounts, he had not maintained adequate capital resources to meet the capital resources requirement.”

The decision notice also says the financial information reported by Wilkinson in his annual accounts show he had capital resources “significantly” below what was required between September 2012 and September 2014.

The notice says Wilkinson did not respond to a warning in April from the FCA saying it was going to take action.

The Upper Tribunal can dismiss Wilkinson's referral or send it back to the FCA with further directions.

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Cazenove Capital acquires private bank

Cazenove Capital is to acquire C Hoare & Co's wealth management business for an undisclosed sum.

The oldest private bank in London, C Hoare & Co has 1,800 private clients and £2.2bn of discretionary assets under management as at the end of June.

Cazenove, which is Schroders' UK wealth manager and manages £33.8bn globally, says C Hoare & Co is a good fit for the business and its growth.

As part of the deal, Cazenove expects to acquire “most” of the 30 client-facing employees.

Cazenove Capital Management chief executive Andrew Ross says: “We believe the combination of our two businesses will bring significant benefits and enhanced opportunities for our clients. The complementary fit between our two firms, the strong shared service culture, long-term thinking and established heritage of both businesses make this an ideal match.”

C Hoare & Co partner and director Alexander Hoare says: “We have chosen Cazenove Capital because our firms share established heritages and similar cultures with the same dedication to customer service.

“We are very proud of the wealth management business that we have built over the last decade and we are keen for it to continue to flourish. We look forward to an ongoing relationship with Cazenove Capital.”

In a statement on its website, Hoare says the deal is also designed to meet the “new challenges of technology” as the group will focus more on the banking business, as well as “the requirements of the regulators”.

He says: “To do this will require growing scale and investment which we believe will best be achieved as part of a larger and deeply experienced wealth management business, backed by the resources required to grow.”

The deal will complete in mid-February.

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